Building society lending steady, but remains depressed

29 June 2009

Gross mortgage lending by building societies was £1,515 million in May 2009, compared to £3,530 million in May 2008, according to the Building Societies Association (BSA).

Commenting on mortgage figures, Adrian Coles, Director-General of the BSA, said: "Gross mortgage lending by building societies was £1,515 million in May 2009, a similar level to the previous two months, but still 57% lower than gross lending in May last year. Building society mortgage approvals were also at similar levels to recent months. However, the £1,607 million of approvals in May were still about 35% lower than the value of mortgages approved in May last year. Therefore, while the mortgage market appears to have recovered slightly from the start of the year, levels of activity remain depressed."

In the savings market, savings balances held by building societies reduced by £106 million in May 2009, compared to an increase of £1,162 million in May last year. This is due to building societies experiencing a net withdrawal of £494 million in May this year, compared to a net inflow of £855 million in May last year.

Commenting on the savings figures, Mr Coles said: "Competition for retail deposits remains intense, as all institutions continue to find their access to wholesale funding markets restricted.

However, those banks that are supported by the State are able to compete unfairly for retail deposits, and steps need to be taken to ensure that Government backing for some institutions does not distort competition for savings.

"These pressures are exacerbated by the current low interest rate environment. There is evidence that households are looking to repay debt rather than save, and it is possible that there will be a net withdrawal (before interest credited) from the total UK savings market in 2009.

"Overall, building societies offer attractive savings accounts are trusted by savers. As a result, societies have attracted substantial inflows since the financial crisis began."