Business, Legal & Accounting Glossary
‘Mutual’ non-profit-making institutions set up to lend money to their members for house purchase. Building societies are ‘Mutual’ because they are owned by their members, who are entitled to their profits and benefits.
The Building Societies Act 1986 enabled building societies to provide a much wider range of services to their members, including unsecured personal loans, insurance policies, house-selling and pensions. This was designed to put them on a level playing field with banks.
In recent years some of the UK’s largest building societies have demutualised and effectively turned themselves into profit-making banks, with their profits being distributed to shareholders rather than their customers.
Building societies are regulated by the Financial Services Authority (FSA). Their trade association is the Building Societies Association.
A building society is a mutual organisation owned by its members – its savers and borrowers – and not by shareholders. Its traditional purpose has been to lend money to individuals to purchase or remortgage their homes. This money used to come exclusively from individual saving members paid interest on their deposits. Now, an increasing proportion of funds is raised on the commercial money markets.
Since the early 1980s, there has been a progressive relaxation of the rules governing the sources from which building societies may raise money for lending. It was an attempt to allow societies to compete more effectively with banks and other specialised lenders.
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This glossary post was last updated: 26th April, 2020 | 2 Views.