Building society borrowing back in vogue as gross lending climbs 39% since the pandemic

The latest market analysis by specialist property lending experts, Octane Capital, has revealed that building societies seem to be back in vogue amongst UK homebuyers, with gross lending estimated to climb by a further 6.3% between 2021 and 2022, following a 33.1% boom the previous year.

Octane Capital analysed gross lending figures to see how building societies have fared when compared to other avenues of lending in recent years, following the widespread perception that they were ‘dying’.

Following a period of demutualisation throughout the 1980s and 90s, the number of building societies reduced considerably, down from 481 in 1970 to just 43 today. In the process, many of those remaining are thought to have lost their way, straying from their traditional lending function and aligning themselves more closely with the big bank lenders.

In doing so, they have blurred the lines between building society and bank at the expense of their previous member base and this has led many to claim that the role of the building society in today’s landscape was dying a death.

The analysis of gross lending figures by Octane Capital suggests that, while exacerbated by the pandemic, this decline was already materialising prior to the outbreak of Covid 19.

Gross lending via building societies sat at £68.9Bn in 2018, accounting for 25.6% of total mortgage lending that year. However, this figure then declined by -6.2% to £64.6Bn in 2019, with mortgage sector market share also falling to 24% of total lending.

During the initial pandemic year of 2020, a further -17.1% brought building society lending to its knees, totalling just £53,5Bn and accounting for just 21.8% of total lending seen across the market.

But while the pandemic may have accelerated the initial decline seen, its impact on how we work, earn and borrow may have also helped spur a revival.

In 2021, gross lending for building societies climbed by a notable 33% on an annual basis and the £71.3m lent to the nation’s homebuyers was the highest total seen over the previous five years, accounting for 23.1% of all mortgage lending.

In 2022, it’s estimated that this level of gross lending will see a further 6.3% jump totalling £75.8m, accounting for almost 24% of all mortgage lending, suggesting that the building society is very much back in vogue amongst the nation’s homebuyers.

CEO of Octane Capital, Jonathan Samuels, commented: “It’s fair to say that building societies lost their way in recent years and in their attempts to match the might of the big banks, they alienated the very borrowers that had helped build them from the ground up.

“However, it does seem as though they’ve come back into fashion and perhaps ironically, this has been due to the impact of the pandemic, despite the fact that it initially accelerated their decline.

“Since the outbreak of Covid 19, there’s been a rising number of self-employed people, as well as an increased number of those with thin or poor credit files. We’ve also seen a greater need than ever for lending with regard to both first-time buyers and downsizers.

“These niche consumers often tend to struggle when it comes to obtaining a mortgage via a big bank and this has presented building societies with the opportunity to recarve a niche and return to their bread and butter proposition.

“Should they continue to serve a distinct purpose within the lending sector, we can expect to see further growth over the coming years.”