Money Insider: Building societies still have plenty to offer
Saturday 05 December 2009
News this week that Yorkshire Building Society and Chelsea Building Society have agreed to merge is the latest in a line of recent moves that are transforming the mutuals sector landscape. Unfortunately this consolidation is unlikely to be the last as societies continue to suffer in the post crunch environment at the hands of some of the Government-subsidised banks.
With bailed-out Northern Rock offering highly competitive savings rates without the need for consumers to concern themselves with the £50,000 Financial Services Compensation Scheme limit, it's not surprising that some mutuals have struggled to compete.
The recent aggressive foray into the short-term, fixed-rate bonds market by HM Treasury backed NS&I will have hurt them too and undoubtedly seen further swathes of retail savings withdrawn.
The enlarged Yorkshire Building Society will be a heavy hitter with 2.7m members and a 178-strong branch network and rank as the number two building society in the UK behind the Nationwide.
Though the mutuals sector may end up being represented by a smaller number of "super societies", it still has a vital role to play in the UK.
The personal finance industry relies on competitive product pricing and high levels of customer service, both of which building societies offer in abundance.
It would be a sad day if there was no longer a strong building society presence that supported loyal members and communities across the country, and certainly not one that could be replaced by the proposed new Post Office banking operation.
In a week when the Nationwide House Price Index revealed that prices continue to rise, there were more positive moves from mortgage lenders.
Coventry Building Society launched a best-buy mortgage at 3.65 per cent fixed for two years with £999 fee at 70 per cent LTV, a deal that may tempt some borrowers away from standard variable rates elsewhere.
Yorkshire Building Society revamped its mortgage range last Monday, including a 10-year fixed-rate product at 5.89 per cent.
There are currently only a handful of lenders offering such long-term loans, and even though they are considered a niche product in the present market, they will appeal to those looking for payment stability. Plus you only have to pay one arrangement fee in 10 years.
Shelling out a one-off fee of £495 rather than combined fees of almost £5,000 for five separate two-year mortgages should be factored in to any total cost calculations.
The Yorkshire product is well priced although you can get a slightly cheaper 5.69 per cent with £995 fee to 75 per cent LTV from Chelsea Building Society and for higher LTV to 85 per cent you can get 6.59 per cent from Britannia with a £599 fee.
Consumers should be aware of the early redemption penalties if they are forced to sell the property during the 10-year term . The redemption cost is 7 per cent of the balance in the first three years, gradually tapering off the longer into the term you get. On a £120k mortgage at 7 per cent, this amounts to £8,400.
Andrew Hagger is a money analyst at Moneynet.co.uk
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