Beyond banks: buying a home with the help of building societies
Formed in the 18th century, building societies were institutions that gave people a place to save money which could then be used to build a home. Historically, building societies were “mutual” institutions designed to benefit their members, also allowing them to borrow money (i.e., for mortgages).
As “mutual” institutions, building societies didn’t have external shareholders. This meant there wasn’t a focus on making profits in order to pay dividends. In fact, any surplus money they had was put back into the society or paid to members.
However, in 1986, a law gave building societies the ability to “demutualise” and become more like banks. In other words, they became more like profit-making businesses that allowed external investors. Importantly though, the basic premise of mutuality, i.e. working in members’ interests, still stands. In fact, it’s this premise that many first-time buyers are attracted to.
According to the Building Societies Association, UK mutual institutions approved 120,626 mortgages during Q1 2019. That gave building societies a 33% share of the market during the first three months of the year.
Building a future with building societies
Contributing to that market share is Coventry Building Society – the second biggest building society in the UK, after the giant Nationwide. Approving mortgages to the value of £8.9 billion in 2018, Coventry Building Society is the UK’s second largest building society. As part of its goal to simplify the mortgage application process and match consumers to the right product, online mortgage broker Trussle carried out its own review of Coventry Building Society. Testing the lender for speed, reliability and product quality, in addition to affordable variable rate mortgages, Trussle found that getting a Coventry mortgage is well above other building societies in terms of customer service. As per the data, just 0.1% of complaints were upheld in 2017, which is lower than the industry average of 0.4%. It’s this level of commitment to customers that’s helped Coventry Building Society become a respected lender.
When you go beyond the numbers, building societies are often seen to have a more personal touch. Coventry’s customer service score is one example of how this is true. However, beyond that, you’ll find that building societies can often offer niche products aimed at atypical circumstances. Additionally, they tend to use experienced underwriters instead of relying solely on computer software. This gives them a greater understanding of borrowers’ individual circumstances, and, therefore, flexibility when it comes to assessing a candidate’s credentials. In contrast, banks mainly use specialised software that reviews applications based on pre-set conditions. Therefore, if an applicant doesn’t fit the standard mould, they’re often rejected by automated algorithms.
A flexible approach for atypical applicants
Although it’s not their only target demographic, building societies can be an ideal option for atypical individuals. Whether it’s self-employed people, older borrowers or those with chequered credit histories, building societies can often be a viable option. In other words, prospective borrowers that don’t fit into clear-cut categories often have a better chance of being accepted for a mortgage by mutual institutions. Applicants using a building society may get the chance to provide a more detailed backstory and plead their case if problems occur. This, in turn, suggests they have a better chance of being accepted than they may have if they use a bank.
Naturally, building societies won’t always be the best option for applicants that don’t fit into the general mould. However, for those who may not tick all the boxes, it can be a good idea to look beyond the major banks. Because smaller lenders including mutual societies use human underwriters and try to offer a personal touch, you may find it easier to borrow from them if you’re an atypical borrower.