Boost for mutual sector as building societies beat banks on savings balances

‘In 2022, building societies offered higher savings rates than those in similar accounts with the major banks’

Figures released today (30 March) from the Building Societies Association (BSA) show that in the first quarter of 2023 savings balances at building societies increased by £8.5bn – more than three times the amount in the same period last year (2.8bn) – while savings balances at other providers fell.

Across the market, balances decreased by £4.7bn for the quarter.

The BSA says this suggests awareness of consumers of “building societies paying, on average, a higher rate of savings interest compared to the major banks”.

At the end of Q1 2023 building societies held savings balances of £362.1bn, up 9% on the £333.4bn held at the end of Q1 2022. Cash ISA balances held with building societies increased by £2.3bn in Q1 2023, compared to an increase of £8.8bn across the market as a whole.

Mortgage lending by building societies was down nearly a quarter in Q1 2023 compared to the same period in 2022, reflecting falling demand in the housing market. However, mortgage approvals in March alone picked up, suggesting some modest uptick in housing market activity.

Gross lending in Q1 2023 was £13.9b, down 23% on Q1 2022 (£17.9bn).

During Q1 this year, building societies approved 85,234 mortgage loans, down 24% on the 111,723 mortgage loans approved in Q1 2022, but up 13% on the 75,758 mortgage loans approved in Q4 2022. 

Building societies hold outstanding mortgage balances of £370.0bn, up 3% on Q1 2022 (£358.2bn), a steady 23% share of the total mortgage market.

Building societies lent to 21,498 first-time buyers in Q1 2023, 16% down on the 25,735 loans made in Q1 2022.

BSA chief executive Robin Fieth said: “Whilst the last decade has been a difficult time for savers, the 12 bank rate rises in the last 18 months has seen interest paid to savers rising, meaning shopping around can make a sizeable difference to the returns available.

“The significant growth in building societies’ savings balances in the first quarter of the year, against the backdrop of an overall fall in savings, suggests the positive rate differential between building societies and banks is influencing customer choice.

“In 2022, building societies offered higher savings rates than those in similar accounts with the major banks. Building society savers received £1.2bn more in interest than they would have got at the major banks.”

“The drop in gross mortgage lending compared to the same period last year reflects the impact on the housing market caused by the economic slowdown.

“Activity in March showed tentative signs that the market is recovering, with mortgage loan approvals 13% higher than in the final quarter of 2022, when the market was affected following the Liz Truss Government’s ‘fiscal event’. However, lending volumes are likely to show continued weakness this year as the housing market responds to higher interest rates and strains on household finances from the higher cost of living.

“Building societies continue to remain alert to borrowers facing a squeezed household budget and who may be worried about making their mortgage payments, and are ready to offer a safe environment for a non-judgemental conversation alongside tailored support.”