Page 1: Introduction
Building societies are an integral part of UK financial services, offering mortgages and savings as their main products. The name 'building society' stems back to the late 1700s when the first society was formed. Small groups of people pooled their savings to buy land and build houses.
Today building societies are the greatest direct competitors to banks for personal customers. The Building Societies Association (BSA) is the trade association that represents all of the UK's 52 building societies.
A building society is a mutual organisation, which means it is collectively owned by its members. This means that members have the right to receive information, speak at meetings and vote at an annual general meeting (AGM) in other words, they have a say in how the society operates. Every member has one vote. Each building society has a board of directors, who run the society on behalf of the members. Anyone who has a savings account or a mortgage with a building society is a member. Members deposit money into their accounts as savings and the society then uses a proportion of this money to offer mortgages to other members.
In contrast, banks are limited companies. They are listed on the Stock Exchange and owned by shareholders. The banks' shareholders expect to receive dividends, which are shares of the profits made. Banks therefore try to maximise their profits in the interests of their shareholders.
Building societies operate in a very different way from banks. Since building societies do not have shareholders, they can focus instead on providing more benefits for their members. These might be in the form of cheaper mortgages or better rates of interest on savings. They also focus on providing high levels of personalised customer service. This can give them a competitive advantage, attracting customers to use their services instead of banks.
This case study illustrates how building societies manage their business during the various phases of the business cycle.