Building society

A financial institution owned by its members

A historic building society in Banbury

A building society is a financial institution that is owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies are similar to credit unions in organization, though they are typically larger.

History

Building societies originated in the United Kingdom in the 18th century. The first building society was established in Birmingham in 1775. These societies were initially formed by groups of people who pooled their resources to build houses for themselves. Once all members had a house, the society was dissolved. Over time, building societies evolved to become permanent institutions that provided savings and mortgage services to their members.

Operations

Building societies operate on a mutual model, meaning they are owned by their members rather than external shareholders. This structure allows them to focus on the needs of their members, often providing more favorable interest rates on savings and loans compared to traditional banks.

Savings and Loans

Building societies offer savings accounts to their members, who in turn provide the capital that the society uses to offer mortgage loans. The interest earned on savings is used to fund the interest paid on mortgages, creating a cycle of mutual benefit.

Mortgage Lending

A former building society branch in Leeds

Building societies are known for their mortgage lending services. They provide loans to members to purchase residential properties. The mutual model allows building societies to offer competitive mortgage rates, as they do not have to pay dividends to external shareholders.

Regulation

Building societies are regulated by financial authorities in their respective countries. In the UK, they are regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). These regulations ensure that building societies operate in a safe and sound manner, protecting the interests of their members.

Demutualization

In the late 20th century, many building societies in the UK chose to demutualize, converting into public limited companies. This process allowed them to raise capital by issuing shares to the public. However, demutualization also meant that these institutions were no longer owned by their members, leading to changes in their operational focus.

Current Trends

Today, building societies continue to play a significant role in the financial services sector, particularly in the UK. They are known for their customer-focused approach and community involvement. Some societies have expanded their services to include insurance and investment products.

Related pages

• Credit union
• Mutual organization
• Mortgage loan
• Financial services

A symbol representing readiness in building societies

A symbol representing withdrawal in building societies