One up to the mutuals in the battle for savers; COMMENT
Wednesday 13 November 1996
The move is also in part designed to further Nationwide's increasingly lonely defence of the mutual structure of ownership. By raising mortgage rates, Nationwide can offer keener deposit rates. With luck the effect will be to lure back to the mutual tradition savers who are holding their money with rivals right now in order to qualify for free shares. That's the claimed strategy anyway.
The converting societies' reply to the argument that the lower profit margin permitted by mutuality will allow higher deposit rates is that their savers will have a different kind of stake. Even if the rates of interest they earn are a shade lower than the rates offered by mutuals, they will have shares that pay dividends and offer capital gains.
This misses the obvious point, however. Members of converting building societies will be able to have their cake and eat it - take the windfall handout, keep or sell the shares, then shop around for the best savings rates elsewhere. Lethargy will probably ensure this does not occur on a grand scale, but at the margin it certainly will. This newspaper and most others have been inundated with aggrieved Alliance and Leicester depositors threatening to move their money elsewhere as soon as they get their free shares.
Even though yesterday brought the first sign of an easing in the mortgage war, it also emphasised the pressures that the converting societies are going to face. Part of the raison d'etre for the remaining mutuals will be to cut profit margins in retail banking by giving away to their depositors and borrowers in the shape of more competitive interest rates what converting societies and banks need to pay out in dividends.
The fact that the interest rate cycle has now turned will make matters worse. Mortgage lenders traditionally increase their margins on home loans when the level of base rates is declining. They did so with a vengeance during the housing market slump. But when base rates are rising, building society margins tend to narrow. This is the more so this time round since most building societies are doubly cautious about increasing mortgage rates while the housing market recovery remains so fragile.
All in all, it adds up to a difficult first year for the new plcs. A booming housing market will help but whether any of them manage to retain their present market share on either lending or deposits remains open to doubt. For all the Gadarene rush to convert into banks, there is a lesson in the fact that the banks have been losing market share to building societies pretty steadily for years. Mutually owned building societies may have their drawbacks but they still win hands down over banks in terms of customer satisfaction.
- 2 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 3 University student in court for allegedly covering housemates' food in window cleaner and spit
- 4 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
Italian police 'reveal' what Jesus looked like as a young boy
Mysterious 'X-Files' sounds heard miles above the Earth
Garland shooting: Isis claims attack on Prophet Mohamed cartoon contest in Texas as its first action on US soil
Met Gala 2015: Beyoncé manages to out-skimp Rihanna, Miley and Kim Kardashian combined with near-naked ensemble
General Election 2015: Photographic history of Bullingdon Club tracked down - including new picture of David Cameron in his finery
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...