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Are building societies better mortgage lenders than banks?

Building societies achieved a 10% rise in new mortgage approvals between July and September this year, increasing their share of the UK mortgage market.  

Since the financial crisis a decade ago, building societies have been making steady gains in the market. Net lending from building societies stands at £105.4 billion, 47% of the total mortgage market. According to the latest figures, with net lending of £3.9 billion in the third quarter of this year building societies accounted for a significant 33% of the growth of the mortgage market.  

Customer perception influences lender choice 

The increasing prominence of building societies in the market could be attributed to the stricter affordability criteria requirements and scaling back of mortgage lending by the big banks over recent years. However, according to Which? building societies do score more highly with customers for good interest rates and customer service, flexibility and offers for local people over the banks.  

Building societies also tend to avoid the negative perceptions suffered by their bank counterparts. Being owned by their members and not driven by shareholder goals, profits are driven back into the business, and into local community projects as many building societies retain strong links to the region where they were established. 

A personalised service   

Building society borrowers also benefit from a more personalised decision making process, which suits homebuyers that don’t neatly tick all the boxes or have a checkered credit score.  Some building societies are well known for looking at cases outside the box, Bath, Market Harborough, Harpenden and Penrith included, and assessing applications on individual merit.  In such cases, building societies will beat most of the bigger banks computer algorithm driven decisions hands down.  

Niche offerings 

Building societies also use niche products to attract borrowers. For example, the Ecology Building Society specialises in lending for ecological new-builds, renovation of derelict buildings and energy-saving improvements to existing buildings, as well as affordable and community-led housing.  Teachers Building Society focuses on a primary customer base of education and teaching professionals, and Bath Building Society offers 100% loans to students wanting to buy a property while at university.  

Borrowers consistently rate building societies better than banks   

A Which? survey of 3,572 customers rated Principality Building Society as the best mortgage lender in Britain, with Nationwide coming joint second with First Direct. Coventry and Skipton Building societies took 5th and 6th place, with Virgin Money taking the 4th spot.  With 7 out of the top 10 being building societies, perhaps it’s time for the banks to evaluate where they are lacking? 

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