Are Building Societies a Safer bet?

marcyj_2

I have always (rightly or wrongly) regarded building societies as being a safer bet then banks because they have more rigid regulations about how much and where money can be invested and its customers are also share holders and have to be answered to. For this reason I have been with Scarborough (formerly Portman) for many years.

Am I right in this assumption or is it a lucky dip at the moment? Should I move it to a safer bet like HSBC? Has anybody heard how Scarborough is getting on at the moment?

cheggers

Might be a safer bet, but I don't know how bad the Scarb has been involved in the Mortgage market, that's what has caused a lot of the crisis by excessive lending. Think the Scab were pretty conservative with lending so you should be OK.

Got money with them, and I'm not worrying.:beer:

Babycakes

The Sad Abbott posted some stuff here the other day but I cannot find the thread. No building society has ever failed but banks have.

darktrader

I have money in several Building Societies as I prefer their lower risk business model and tighter regulation. Their history and ethos is more to my liking too.

The fact remains though, I am only covered for the first £50K so, personally, I would not have more than that in any single Building Society. Although, as far as risks to banks and BS go in this country, the worst is now over.

chardir

Building societies are probably safer but the most important advice I'd give to anyone is to never have all your savings in one institution.

cheggers

May be stick to the top 17 socities, but then I'd reduce it by 2 to 15 as Derbyshire & Cheshire are part of Nationwide.


1.Nationwide
2.Britannia
3.Yorkshire
4.Coventry
5.Chelsea
6.Skipton
7.West Bromwich
8.Leeds
9.Derbyshire (part of N'wide)
10.Principality
11.Cheshire (part of N'wide)
12.Newcastle
13.Norwich & Peterborough
14.Dunfermline
15.Stroud & Swindon
16.Nottingham
17.Scarborough

HankMcSpank

In my opinion, right now, no bank/building society is truly safe, but at least when it's onshore there's a degree of compensation!

My main worries about the Scarborough...

The Yorkshire based building socities/banks seem to be in the thick of it (think Bradford & Bingley, Halifax...or a bit further north ....Northern Rock)

New builds in the Yorkshire area have been twatted - that's *got* to affect their balance sheet. (in any falling property market the North comes of worst & that'll be where most of their business will be.)

they seemingly walk a fine line between being profitable & at a loss - last years accounts shows just a profit of 7.8 million - which I don't think is a lot for the 17th largest building society (& this is during the good times!)

There a little too small for my liking.

The Scarborough were chomping at the bit to get involved with sub prime & specialist lending but were a bit late to the table....

http://www.mortgages.co.uk/news/2006/Aug/Scarborough-to-focus-on-specialist-mortgages.html (sub prime, self cert anyone?)

http://www.mortgages.co.uk/news/2005/Oct/Scarborough-launches-first-ever-self-funding-holiday-mortgage.html (holiday home 'buy to let' anyone?)

....in the light of the tack they were keen to take, I'd therefore worry a little about the intentions of the board.

There's almost no news flow from them whatsoever (I have access to some pretty specialist financial news databases....not a lot on there)....silence is not golden in these markets.

But the biggie for me is the only compensation you have been ofshore with them is from the parent company itself - fat lot of good that'll be if the parent is in diffs!

opinions4u

I think you are on dangerous ground to assume one type of financial organisation is safer than another.

True, building societies can only raise 50% of their lending capital from the money markets. Nationwide, for example, raise around 30% this way. But the reality is that if this dries up the organisation is as stuffed as any bank.

A commercial bank lends its money more broadly. A building society is more or less (minor exceptions) totally restricted to residential mortgages. Why do you think the mortgage banks have suffered most in the last 13 months? This says to me that building societies share similar risks - but these can be better hidden from the markets due to no share price activity.

Britannia had it's half year profits slashed in two by bad debt write-offs. They had, up until recently, been campaigning to allow them to access the money markets for up to 75% of their funding requirements.

When I started work (for a building society) 22 years ago, there were around 900 building societies. At the last count we were under 60. Organisations like the Wakefield and the Town & Country would have gone under without a bailout (Halifax and Woolwich were the knights in shining armour - no longer an option). More recently we have seen Derbyshire and Cheshire teetering on the brink, only to be quickly and quietly 'saved' by the Nationwide. Of the others to vanish some were bought out or merged in to bigger societies as strong assets, others were failing.

The Nationwide, however, cannot be expected to mop up each and every building society that runs in to trouble without eventually damaging the security of its members. Most of the others on the list above don't have the strength today to support a lame competitor if asked to.

I am not saying you should avoid the building societies. You shouldn't. But to say that they are safer than banks is a dangerous assumption.

Ultimately, in the credit crunch, any financial institution is as safe as the wholesale funders perceive its mortgage book to be. If they think there may be nasties underneath the surface they could pull the plug. At which point HM Government can step in as they have agreed to do for the big banks.

Unless of course they don't use wholesale markets at all. In which case they rely on the goodwill of their savers. Fingers crossed Nationwide's impressive army of 1 year fixed rate account holders won't flee to pastures new when they reach maturity!!

apt

The Guardian has a survey of all the building societies. None seem that vulnerable. Although mortgage defaults are likely to rise they don't seem to have the near 100% mortages that Northern Rock and B&B had. The small societies also come out well as they have little or no dependence on commercial funding.

bristolleedsfan

apt wrote: »

The Guardian has a survey of all the building societies. .

http://www.guardian.co.uk/money/2008/oct/11/banks1


http://www.guardian.co.uk/money/2008/oct/11/banks2


http://www.guardian.co.uk/money/2008/oct/11/banks3


http://www.guardian.co.uk/money/2008/oct/11/banks4

Patr100

Northern Rock and B & B were of course Building Societies originally but it has been said elsewhere not a single BS that demutualised and became a bank has survived in its original form.
They all wanted a piece of the expanding market and access to extra borrowing that we are paying the price for now.