BSA Newsbite – April 2007
News in digestible form
Welcome to the April edition of our e-newsletter, BSA Newsbite. A monthly online update, Newsbite will give you the latest news, views and stats from the building society sector.
NEW REPORTS FROM THE BSA
Saving: the habit of a lifetime
New research published by the BSA investigates how and why people come to vastly different saving decisions despite having similar resources at their disposal.
While a better rate of return is the most important factor in encouraging saving, there are many other influences on the decision.
A striking result from the research is that none of the factors offered to the survey respondents would persuade 30% of non-savers to start to save. For some, saving will be impossible because of resource constraints. However, this result highlights that saving is undervalued by a significant proportion of the population.
The benefits of saving, such as security or enabling opportunities to be realised, are outweighed by the perceived short-term costs of saving. These costs are amplified by the way in which saving is considered.
Societies make mutuality matter for members
In 2007, building societies are putting more effort than ever before into making mutuality matter for every member, a new report by the BSA shows.
Being a member of a building society can mean different things for different people. For some, mutuality is the very reason they joined the society, but for other savers and borrowers, it can mean very little.
As mutual organisations, building societies are collectively owned by their members. This means those members have a say in how the society is run each year at the AGM.
In addition, many societies are taking steps to ensure that members’ voices are heard by the management more than once a year. This is in contrast to the banks who see customers only as a means of making money for shareholders.
Ten years after
April 2007 marks the tenth anniversary of the first of the five demutualisations which occurred in the spring, summer and autumn of 1997.
On 21 April of that year Alliance & Leicester Building Society turned itself into Alliance & Leicester Plc. It was followed by Halifax (2 June), Woolwich (7 July), Bristol & West (28 July) and Northern Rock (1 October). The frenzy of demutualisation activity then tailed off with Birmingham Midshires being taken over by Halifax in April 1999 and Bradford & Bingley bringing up the rear in December 2000. There have been no demutualisations since then.
All of the institutions that chose to focus on shareholders rather than customers are now banks, although all seek to disguise that status.
Fixed rate mortgages and interest rate changes
When the Bank of England Bank Rate is increased, lenders often take their fixed rate mortgages off the market, only for them to reappear a few days later, at a higher interest rate. This has lead to accusations of lenders “profiteering” at the mortgage holder’s expense.
However, when building societies and banks do this, they are actually responding to changes that are being made in the wider financial market, and this briefing paper seeks to explain the reasons why.
A building society will have a number of issues to consider when introducing a new mortgage product (or continuing with current offerings). Paramount amongst these are how the product will be funded.
April brings changes to building society legislation
On the 6 April 2007 a raft of changes to building society legislation came into force. First of all, the funding limit calculation has been changed so that societies with offshore deposit-taking subsidiaries are now able to disregard such deposits, subject to a limit of 10% of total shares, deposits and debt securities.
Secondly, societies using international accounting standards will now be required to prepare their summary financial statements using a slightly amended format that more fully meets IAS presentation requirements. There are also consequential changes to these societies’ directors’ reports and annual business statements.
And finally, certain financial limits and thresholds for all societies have been doubled. For more information click here
And finally …
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Society news
Record breaking society
The Nottingham Building Society last week broke the world record for the largest ever gathering of costumed Robin Hoods. 165 Robin Hoods gathered by Nottingham Castle to help the Society into the record books.
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