Tory move to put mutuals on a more equal footing

A Conservative parliamentary backbencher is petitioning for a change to funding limits legislation that currently hampers societies\' mortgage lending potential if the market changes.

Sir John Butterfill, MP for Bournemouth West and vice-chairman of the All Party Group on Building Societies, has posted a Private Member’s Bill that seeks to amend the Building Societies Act to enable the relaxation of funding limits.

These funding limits presently stand at 50%, meaning mutuals’ must raise at least half their funds from their own members’ deposits.

If this rule was to be relaxed it would enable mutuals to borrow more from the wholesale market without the need for protracted government debate if there are changes in the market.

Sir John says: “Financial mutuals represent a valuable and responsible part of the financial services industry. This bill offers them the flexibility to compete more effectively – a development which can only bring benefits to consumers.”

Rachel Snow, head of external affairs at the Building Societies Association, says: “If things were to change in the market and we saw a huge demand for larger loans, mutuals would be at a distinct disadvantage compared with banks as we couldn’t do as many deals with the present funding limit.

“This bill would allow the Treasury to put out an order to allow funding levels to be changed, giving the option for the law to be amended quickly.

She adds: “It is prudent to have a mechanism in place to be ready for any change to funding.”