A Building Society is traditionally a financial institution that accepts deposits, upon which it pays interest, and makes loans for house purchases or house improvements secured by mortgages. Originating from the Friendly Society movement in the late 17th century, these institutions were initially non-profit-making with mutual status.
Origin
Building societies emerged in the United Kingdom during the 18th century as mutual organizations. The first known building society, Ketley’s Building Society, was founded in 1775 in Birmingham. The core purpose was to enable members to pool resources to fund house purchases or improvements. This mutual model proliferated in the 19th and early 20th centuries.
Global Expansion
Building societies or similar entities exist in several countries, including:
- UK
- Australia
- South Africa
- Ireland
- New Zealand
- USA (Savings and Loan Associations)
Legislative Changes
The Building Societies Act 1986 in the UK significantly widened the range of services they could offer, bringing them into competition with commercial banks.
Traditional Services
- Savings Accounts: Deposits with interest payments.
- Mortgages: Loans secured by real estate.
Modern Banking Services
- Cheque Accounts: Accounts that pay interest on all credit balances.
- Cash and Credit Cards: Providing cards for cash withdrawals and credit.
- Loans: Various personal and business loans.
- Money Transmission: Facilitating payments and transfers.
- Foreign Exchange: Currency exchange services.
- Valuation and Conveyancing: Property valuation and legal conveyance services.
Key Events
- 1775: Establishment of Ketley’s Building Society in Birmingham.
- 1986: Building Societies Act enables competition with commercial banks.
- 1990s: Many building societies convert to public limited companies (PLC) and merge for national presence.
- Present: Regulated by the Financial Conduct Authority in the UK.
Mutual Status vs. Public Limited Companies
- Mutual Status: Owned by members, non-profit-making.
- PLC Conversion: Owned by shareholders, profit-driven.
Regulatory Framework
Building societies in the UK are regulated by the Financial Conduct Authority (FCA), ensuring compliance with financial regulations and protecting customers’ interests.
Importance
Building societies play a crucial role in:
- Promoting home ownership.
- Providing competitive financial services.
- Supporting community-based financial initiatives.
Building Society vs. Commercial Bank
- Ownership: Members vs. Shareholders.
- Profit Motive: Non-profit (originally) vs. Profit-driven.
- Regulation: FCA vs. Bank of England.
FAQs
What is a building society?
A building society is a financial institution that provides banking and related financial services, particularly for home financing, originally formed as member-owned mutual organizations.
How is a building society different from a bank?
Building societies are traditionally member-owned mutual institutions focused on residential mortgage lending, while banks are profit-driven institutions owned by shareholders.
What services do building societies offer today?
Modern building societies offer a range of services similar to banks, including savings accounts, mortgage loans, cheque accounts, credit cards, personal loans, and foreign exchange services.