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Societies always lend prudently

Last week Prime Minister Gordon Brown called for a blanket ban on 100% mortgage lending.

Sensible, some may think, but a step too close to a nanny state, according to others.

Underneath the headlines was a comment I found interesting. Brown said: “We want to see a reinvention of the traditional savings and mortgage bank in Britain, making loans on prudent and careful terms.”

I think what he was referring to was not a traditional mortgage bank, but a building society. Building societies have always operated in this manner – they are built on solid foundations and, while some have diversified into wider product offerings, these principles are still at the core of every society.

In short, they allow a safe haven for those wanting to save and lend to those that need to borrow to buy homes. This is the way that mortgages provided by building societies are funded.

While other, often nationalised institutions grab the headlines, societies are continuing to lend in a prudent manner.

In fact, societies and their subsidiaries provided 62% of net mortgage lending in Q4 2008. It could be said that traditional, tried and trusted are the sexiest words in financial services in this climate.

Societies have their challenges, such as paying disproportionate levies to the Financial Services Compensations Scheme. I’d urge Brown to consider the structure of this scheme as in its current form it punishes the type of prudent lending that he encourages.

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