Why is the mortgage market so dominated by just six lenders?
Not so long ago mortgage lending was dominated by building societies. They were little, they were local, and there were lots of them. But now just six lenders are hoovering up more than 90% of mortgage business – and only one of them, the Nationwide, is a building society. And unfortunately that’s going to continue to be the case for some time yet.
Building societies were pretty much set up to do literally what their name suggests – to build a better society. They have been around since 1775 when the first-known society was formed. That society, called Richard Ketley’s, was formed at the Golden Cross Inn, in Birmingham, over one or two fine ales.
These early societies were ‘terminating’ – winding up when all their members had been housed. Back in the day, building societies were a force to be reckoned with. But in 1989, the building society that was Abbey National (now Santander), one of the largest building societies, passed a resolution that allowed it to convert into a PLC and a bank.
It really was the beginning of the end . This continuing thirst for cash and profits marked the end of the mutual sector as a force de jour. The rot had begun and the writing was pretty much on the wall.
In 1995 Cheltenham and Gloucester Building Society became part of Lloyds Banking Group. Then in 1997 Halifax – the UK’s largest building society – converted to a bank.
Fast forward to 2010 and, recent figures from the Council of Mortgage Lenders (CML) show, six lenders (Lloyds Banking Group, Santander, Nationwide, Royal Bank of Scotland, Barclays and HSBC) now have 92.2% of all mortgage business. In 2007, twice as much money was lent for mortgages as in 2009 (£364bn in 2007, £144bn in 2009, according to the CML), and was much less concentrated with this handful of lenders. In 2009, 82% of lending came from the top five lenders, four of them banks, compared to 64% in 2007.
Today mutuals are trying to maintain their high street presence, but long gone are those halcyon days when the sector was at its height.
By their very nature, mutuals give people a proper stake in the places they work, spreading wealth through society, and bringing innovative and imaginative business ideas to bear on meeting local needs.
But it’s unlikely that they will ever get back to the heady days of the early 1980s.
Nationwide, the largest building society in existence today, operates more like a bank than most and there is little doubt amongst the senior management team that it would convert to bank status if it could.
One of the main problems that societies have when it comes to mortgage lending is that they can only lend what they have collected in savings. In a country that’s stopped saving, that makes lending particularly difficult. Add into the mix how worried people are about holding onto their job and that the general level of household income is seen as decreasing, the future of the building society is far from bright.
Times are tough. Savings balances held at mutuals decreased by £1 billion in July – more than likely because people are struggling at home.
That said, lending by building societies has picked up over recent months too. Mutuals’ gross lending amounted to £1,995 million in July 2010 compared to £1,798 million in June.
Getting your hands on a mortgage is going to be difficult for some time yet. But it will be even longer until building societies are back in vogue.