MPs approve law change to level playing field for building societies

The news was welcomed by sector body BSA, which says it will give mortgage customers more choice

The Building Societies Act 1986 (Amendment Bill) successfully completed Parliamentary stages today (24 May) to become one of the final bills to pass this Parliament.

This bill was introduced by Julie Elliott MP (Lab, Sunderland Central) to help to put building societies on a level playing field with their banking competitors, enabling them to support more lending to first-time buyers and homeowners in the future. 

It has been passed as part of the wash-up process, where MPs deal with unfinished business that would otherwise be lost when Parliament dissolves.

Welcoming the news, the Building Societies Association (BSA) said the sector plays “a crucial role in the UK economy, accounting for a quarter of all new mortgage lending in the UK”.

It added: “They direct a greater proportion of lending to first-time buyers than banks. In the first nine months of 2023, over half (55%) of all building society lending for property purchases was to first time buyers – supporting over 70,300 households to buy their first home.”

The update long overdue, the BSA added, noting that under the existing law, member-owned building societies are required to raise at least 50% of their funding from members’ savings deposits.

This ‘funding limit’ is an important feature of the building society model, as it preserves their mutual status. However, other types of funding, taken from the financial markets or from the Bank of England, also count toward the funding limit, and constrains building societies from competing more effectively with the UK banks, it says.

“Amending the current act will enable building societies to have more capacity to lend to UK customers,” said the BSA, “and to access emergency funding from the Bank of England in a time of financial stress, without it impacting their funding limits. This will help to ensure building societies continue to operate safely and securely while also enabling them to help more people to get on the housing ladder.” 

Robin Fieth, BSA CEO, said: “The fact that this Bill has been able to successfully complete the necessary parliamentary stages as part of wash-up is testament to the strong cross-party support for building societies and the important role they play in our communities.  

“Our thanks to Julie Elliott MP, who introduced this bill, to Lord Kennedy of Southwark who took it through the Lords and to economic secretary to the Treasury, Bim Afolami, and his team for all their support in ensuring it made it to the statute book.”

He added: “The new Act will help level the playing field for the UK’s building societies and give them the capacity to lend more into the economy. It’s high time the 1986 act was updated to reflect the needs of today’s economy. The changes brought in by this new act will drive greater competition in the mortgage market, which will give mortgage customers more choice, and support a healthy marketplace.”