There seems to be some confusion over just how the credit crunch is affecting building societies in the UK, with conflicting opinions from various officials within the building societies industry. When the global credit crunch took a hold it became quite apparent very quickly that the larger banks and financial institutions in the UK were going tom experience massive problems. Indeed, larger banks and lenders did start to experience many problems, with increasing difficulties when it came to securing finances on the wholesale markets in order to fund their lending operations.

However, whilst the larger banks were experiencing problems with their funding, many thought that the UK’s building societies had escaped the major effects of the credit crunch. One of the main reasons for this train of thought was that building societies mostly fund their mortgages and lending from savers’ deposits. However, a series of recent reports from smaller building societies suggested that they had in fact become victims of the credit crunch, with many stating that they have had to withdraw various products, restrict lending, and take on less business.

A spokesperson from one building society recently stated: ‘Any potential borrower who currently has a mortgage offer from us should rest assured. Those deals will be honoured. We will try to help existing borrowers coming off discounted rate deals where we can, but the reality is that borrowing is more expensive.’

Another building society official said: “We were getting a lot of calls from around the country and we wanted to make sure that people locally can get them. Lenders are withdrawing rates and increasing them and limiting the percentage they will lend on. We are a bit loathe to do that and it is to make sure we don’t have to that we are restricting borrowing to people in our area.”

In a similar vein, another official from a small building society said: “Wholesale money is difficult to get and we have come to a standstill at the moment. We are hoping it will just be for a month, but we have taken on so much we have just run out of money to lend at the moment.”

However, despite the concerns from building societies, and the obvious fact that many have started to take their various deals off the market and cut back on their lending levels, officials from the Building Societies Association have claimed that the picture is not that bleak for building societies, and that they are by and large in good shape.

An official from the BSA stated: “I don’t think they’re struggling, in fact very much the opposite. Building societies aren’t the only organisations out there that are cutting back on lending, competitors are as well. Just because they’re restricting lending doesn’t mean that they’re struggling.”

The conflicting reports from the BSA and officials from building society branches may be causing some confusion for many consumers, but most are aware that lending across the board has become tighter, and that this could mean increased difficulties in getting finance from both banks and building societies.

Recent additions:

• Should those with bad credit be relying on mortgage brokers?
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• Problems set to continue in mortgage sector
• Can Long Fixed Rate Mortgages Stabilise Mortgage Market?

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