What Is a Building Society?
A building society is a type of financial institution that provides banking and other financial services to its members. Building societies are commonly found in the United Kingdom, Ireland, Australia, New Zealand, and other Commonwealth nations. They resemble credit unions in the U.S. in that they are owned entirely by their members rather than shareholders. These organizations offer mortgages and demand-deposit accounts. Insurance companies are often major supporters.
Key Takeaways
- Building societies provide banking and other financial services to their members.
- They are similar to credit unions but their members are typically those in construction trades, real estate, or co-op housing.
- Building societies are conservative in their approach to investment and savings as compared to banks or other financial institutions.
Understanding Building Societies
Building societies are financial institutions commonly found in the U.K., 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.
Building societies have a particular focus on savings and mortgage lending. Mortgages can help businesses and individuals who buy into a building society make large real estate purchases without paying its entire value upfront. Over a period of several years, the borrower repays the loan for the property, plus interest, until it is eventually owned free and clear.
These institutions are just like credit unions and cooperatives rather than banks. Banks are generally listed on stock exchanges and accountable to stockholders. Building societies, on the other hand, are completely owned by their members, each of whom has a vote. Members are normally individuals who are in construction trades, real estate, or co-op housing.
The Building Societies Association, which was established in 1869, represents the interests of all 43 building societies (and the seven credit unions) that operate in the United Kingdom. These financial institutions serve the needs of more than 26million customers in the country.
Building societies are also called mutuals.
Special Considerations
British building societies are not allowed to raise more than 50% of their funds from the wholesale markets. On the other hand, banks have a diverse array of funding societies from open markets to bond issuances and investments in commercial markets. Some argue that this is a significant advantage that banks have over building societies.
That said, some building societies made the same investment decisions as banks did during the leadup to the financial crisis and had to close down or be rescued from bankruptcy. Among them were:
- Barnsley Building Society, which was acquired by Yorkshire Building Society in 2008
- Derbyshire Building Society, which was acquired by Nationwide Building Society in 2008
- Dunfermline Building Society, which was acquired by Nationwide Building Society in 2009
History of Building Societies
Building societies are now major competitors of banks in the U.K. They can also be found in other countries, such as Ireland, Australia, New Zealand, and Jamaica among others. But their history goes back several hundred years.
The earliest organizations were called terminating societies because they were temporary. They were designed to help members find and own housing. The first, called Richard Ketley's, was formed in 1775 in Birmingham. By 1825, there were more than 250 societies in place across the U.K. In 1845, the Metropolitan Equitable was formed, becoming the first permanent society.
The Building Societies Protection Association was established in London in 1869 to protect the interests of these societies, which numbered 1,723 societies by 1910. The Building Societies Act, which was passed into law in 1986, provided societies with the power to provide members with housing and banking services.
Building Societies vs. Credit Unions
Members entirely own the 43 building societies and seven credit unions that operate in the UK. Their structure is similar to that of American credit unions. More specifically, credit unions can range in size from small, volunteer-only operations to entities with thousands of participants. Large corporations, organizations, and other entities may form credit unions for their employees and members.
Most credit unions follow the basic business model of members pooling their money via purchasing shares in the cooperative. In exchange, they receive the ability to request loans, open demand deposit accounts, and obtain other financial products and services from each other. Any income generated generally goes towards funding projects and services that will benefit the community and the interests of its members.
In some cases, credit unions can be at a disadvantage to larger banking institutions if they have fewer brick-and-mortar locations to service clients who like to transact in person. For instance, most credit unions offer online banking and auto-bill pay but rarely at the level of TD Bank, which is one of the big six banks in Canada.
Examples of Building Societies
Building societies compete with one another using the same parameters as other financial institutions, such as interest rates and number of withdrawals.
Nationwide was the biggest building society in the U.K. with £272.35 billion in group assets as of the end of the 2022 fiscal year, according to the Building Societies Association. The other building societies that made up the top five included:
- Coventry: £58,87 billion in group assets
- Yorkship: £58.75 billion in group assets
- Skipton: £33.57 billion in group assets
- Leeds: £25.51 billion in group assets
How Many Building Societies Are in the U.K.?
There are 43 different building societies across the United Kingdom. These financial institutions are represented by the Building Societies Association, which also acts as a voice for seven national credit unions. Together, these organizations serve about 26 million members.
What Makes Building Societies Different From Banks?
Building societies are commonly found in the United Kingdom, 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 do share some similarities to banks in that they provide consumers with a range of financial services, including deposit accounts, loans, and mortgages. But
What Is the World's Largest Building Society?
Nationwide is the largest building society in the world and in the United Kingdom. It had £269.07 billion in society assets as of the end of the 2022 fiscal year.
The Bottom Line
Most people opt for banks when they shop for financial services. Banks are profit-driven companies that trade on stock exchanges. But in some parts of the world, consumers may opt for financial institutions that answer to members rather than shareholders. Building societies have a long history of providing their members with deposit accounts, home loans, and other financial products. These organizations, which are common in the U.K. and other parts of the world, are just like the credit unions that operate in the United States.
