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Building Societies and the Future of Retail Banking

For those following Financial news over the last few months, it can seem like quite a dark time for Building Societies, retail banking and the mortgage space, with a lot of doom and gloom surrounding “mortgage prisoners”, affordability rules and the possibility of an apparently impending interest-only mortgage time-bomb. There’s a sense of panic amongst some customers, who fear raising the issue with their provider, thinking perhaps they’ll be asked to pay immediately and be in an even worse situation.

Personally, I believe that this is a very exciting time of great opportunity for Building Societies to really show why they can be a fantastic alternative to traditional big banks for some customers. Speaking at the Building Societies Annual Conference last month, the FCA’s Director of Supervision (Retail & Authorisations) Jonathan Davidson spoke about Building Societies being perfectly positioned to provide unique solutions to consumers. Of course, the ability to provide complex products needs to be balanced with a strong understanding of the complex risks that come with it, and affordability and lending risk considerations will continue to be crucial for organisations of all sizes. We’re already seeing some unique responses to recent issues from the Building Society markets, with a number of them announcing, for example, Retirement Interest Only Mortgages, a product very specifically designed to help their customers avoid these problems, and YBS announcing that they’re completely abandoning “Early Redemption Charges”.

Mark Marsden of Beverley Building Society commented that: ‘Our individual manual underwriting processes specifically provide for helping ‘mortgage prisoners’ access all our competitive mortgage schemes and we consider doing so to be an important contribution to our social purpose of helping support sustainable homeownership’. Beverley has also recently broadened the availability of interest-only lending to older borrowers (including those in retirement) and will be launching a Retirement Interest-Only product later in the year.

Mark welcomed the FCA’s initiative in this area commenting that ‘in normalising the provision of these types of loans the regulator has greatly assisted lenders to accelerate product development by reducing uncertainty around the interpretation of the associated conduct risks and ensuring minimum standards of protection for customers. Retirement Interest-Only mortgages will not be suitable for everyone, but can satisfy existing and emerging needs in a very cost-effective way’.

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