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What is a building society?
A housing association is a type of financial institution that offers its members banking and other financial services. Building societies are commonly found in the United Kingdom, Ireland, Australia, New Zealand and other Commonwealth countries. They are similar to American credit unions in that they are wholly owned by their members and not by shareholders. These organizations offer mortgages and savings accounts. Insurance companies are often big supporters.
Key Takeaways
- Construction companies offer banking and other financial services to their members.
- They are similar to credit unions, but their members are typically operators in the construction industry, real estate or cooperative housing.
- Building societies approach investments and savings conservatively compared to banks or other financial institutions.
Understanding building societies
Building societies are financial institutions commonly operating in the United Kingdom, Ireland, Australia, New Zealand and other Commonwealth countries that provide a range of financial services to the public. These include deposit accounts, loans, mortgages and other financial products.
Construction companies focus especially on savings and housing loans. Home loans can help companies and individuals buying condominiums make large real estate purchases without paying the full value upfront. Over several years, the borrower pays back the property loan with interest until it is finally owned free and clear.
These institutions are more like credit unions and cooperatives than banks. Banks are usually listed on the stock exchange and are accountable to shareholders. Building societies, on the other hand, are fully owned by their members, each of whom has a vote. The members are usually individuals who work in the construction industry, real estate or cooperative housing.
The Building Societies Association, founded in 1869, represents the interests of all 43 building societies (and seven credit unions) operating in the UK. These financial institutions serve the needs of more than 26 million customers in the country.
Important
Building societies are also called mutual companies.
Special considerations
British construction companies are not allowed to raise more than 50 percent of their funds from the wholesale market. On the other hand, banks have a wide variety of financing companies, from open markets to bond issuances and investments in commercial markets. Some argue that this is a significant advantage banks have over building societies.
However, some housing associations made the same investment decisions as banks before the financial crisis, and they had to close down or be saved from bankruptcy. Among them were:
- Barnsley Building Society acquired by Yorkshire Building Society in 2008
- Derbyshire Building Society acquired by Nationwide Building Society in 2008
- Dunfermline Building Society acquired by Nationwide Building Society in 2009
History of construction companies
Housing associations are now major competitors to banks in the UK. They are also found in other countries such as Ireland, Australia, New Zealand and Jamaica. But their history goes back several hundred years.
The earliest organizations were called ceasing societies because they were temporary. Their purpose was to help members find and own a home. The first, called Richard Ketley’s, was established in 1775 in Birmingham. By 1825 there were over 250 societies in the United Kingdom. In 1845, the Metropolitan Equitable was founded, becoming the first permanent association.
The Building Societies Protection Association was founded in London in 1869 to protect the interests of these societies, and by 1910 there were 1,723 societies. The Building Societies Act, which came into force in 1986, empowered associations to offer housing and banking services to their members.
Building Societies vs. Credit Unions
Members wholly own 43 building societies and seven credit unions operating in the United Kingdom. Their structure is similar to that of American credit unions. More specifically, credit unions can range from small, volunteer-only operations to large ones with thousands of participants. Large companies, organizations and other communities can establish credit unions for their employees and members.
Most credit unions follow a basic business model where members pool their money by buying shares in the cooperative. In return, they get the opportunity to request loans, open deposit accounts on demand and obtain other financial products and services from each other. Any income generated is usually used to fund projects and services that benefit the community and the interests of its members.
In some cases, credit unions may be at a disadvantage compared to larger banks if they have fewer brick-and-mortar locations to serve customers who prefer to do business in person. For example, most credit unions offer online banking and automatic bill pay, but rarely at the level of TD Bank, one of Canada’s Big Six banks.
Examples of building societies
Construction companies compete with each other on the same parameters as other financial institutions, such as the interest rate and the number of withdrawals.
According to the Building Societies Association, Nationwide was the UK’s largest building society with assets of £272.35 billion at the end of the 2022 financial year. Other housing companies in the top five were:
- Coventry: 58.87 billion pounds of group assets
- Yorkship: 58.75 billion pounds of group assets
- Skipton: 33.57 billion pounds of group assets
- Leeds: 25.51 billion pounds of group assets
How many building societies are there in the UK?
There are 43 different building societies in the UK. These financial institutions are represented by the Building Societies Association, which also acts as the voice of seven national credit unions. Together, these organizations serve approximately 26 million members.
What separates building societies from banks?
Building societies are commonly found in the UK, Ireland, Australia and other parts of the world. Unlike banks, these organizations are not public companies, so they are not accountable to shareholders. Instead, building societies are owned by their members, each of whom has a vote. But they share some similarities with banks in that they offer a variety of financial services to consumers, including deposit accounts, loans and mortgages. But
What is the world’s largest building society?
Nationwide is the world’s and the UK’s largest building society. It had £269.07bn of social assets at the end of the 2022 financial year.
Bottom line
Most people choose a bank when purchasing financial services. Banks are for-profit companies that trade on the stock exchange. But in some parts of the world, consumers can choose financial institutions that respond to member shareholders. Building societies have a long history of offering deposit accounts, mortgages and other financial products to their members. Common in the UK and elsewhere in the world, these organizations are much like credit unions in the US.