Record £16bn trusted to building societies

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Building societies reaped the rewards of the Northern Rock crisis last year by attracting a record £16.1bn of savings inflows – almost double the £8.3bn in 2006.

The inflows could also be down to savers putting aside more money before an economic slowdown that many fear could lead to a recession. The previous record was set nearly 20 years ago as savers sought the security of building societies after the stock market crash of October 1987. The announcement of the figures by the Building Societies Association came as nearly 5 per cent was wiped off the FTSE 100 index on fears of a US recession.

A big chunk of the inflow came in October, just after the run on Northern Rock, when the sector received £3.02bn in new savings deposits – more than four times the year-earlier figure. Savers looking for safety after the shock of Northern Rock have opted for big banks and low-risk building societies.

Adrian Coles, director general of the BSA, said: "The majority of the dep-osits came in the latter months of 2007, so a significant proportion is almost certainly funds withdrawn from Northern Rock bank.

"However, a substantial amount is also likely to be from households increasing the amount they save in preparation for a more uncertain year ahead."

Deposits are the new battleground for building societies and banks after years of easy lending amid cheap credit markets and booming house prices. Asset growth is set to slow as consumers tighten their belts, and lenders are competing for retail funding after the cost of borrowing in the capital markets increased.

A survey by PricewaterhouseCoopers and the Confederation of British Industry this month indicated that building societies were hit particularly hard by the seizing up of wholesale markets. But the BSA said yesterday that societies raised £19.1bn last year, compared with £13.5bn in 2006, as 40 societies tapped the markets for a total of £6.4bn in December alone.

Gross mortgage lending by societies was virtually flat last year at £52.1bn. But net lending was down by 21 per cent to £12.6bn as higher interest rates hit the mortgage market as a whole.

There are 59 building societies in the UK. They hold about £250bn of mortgages, about 20 per cent of the total for existing mortgages.