Building societies win the price war

Companies that fended off the carpetbaggers are beating the banks by keeping their interest rates lower

BUILDING SOCIETIES that have stayed mutual have trounced rivals that floated on the stockmarket by outbidding them in the mortgage price war, it emerged yesterday.

Nationwide, the biggest society to stay mutual, announced it had sold more mortgages on its own than the Halifax, Abbey National and the Alliance & Leicester put together.

The results will put pressure on converted societies such as the Woolwich or Alliance & Leicester, which have seen their share of the country's mortgages shrink since they floated last year.

Prices of shares in the floated societies sank yesterday after the news of Nationwide's strength. The value of a typical Halifax windfall, which peaked at pounds 3,300 last year, fell by nearly pounds 100 to pounds 2,838.

Determined to prove that they are more competitive because they do not have to pay dividends to shareholders, mutual building societies have been slashing the rates they offer on mortgages. Nationwide has kept rates at 8.1 per cent compared to 8.7 per cent at most listed lenders.

By keeping its rates down, Nationwide grew its share of the mortgage market by more than half, lending 11.9 per cent of all net new loans in 1997, compared to a normal share of 7.7 per cent. In contrast, Halifax has seen its share dwindle to barely a third of its old size.

Nationwide also triumphed in the market for savings, taking an unprecedented 20 per cent share. While some of the new money was from "carpetbaggers" looking for another windfall, the building society has still taken on 300,000 new savers since last November, when it insisted new members must assign their windfall rights to charity.

The results were trumpeted yesterday as a vindication of mutual building societies that remain owned by their customers - rather than shareholders. Since the stream of windfall flotations last year, mutuals have been under intense pressure to float and become banks.

Nationwide will next month face the second attempt in a year to force it to convert to a bank when members are urged to vote on a proposal at the society's AGM. Michael Hardern, the former butler who was defeated by a two thirds majority when he ran for election to the board last summer, has tabled the proposal. Andrew Muir, a 32-year-old recruitment consultant from Slough, has also secured the 50 nominations needed to run for election to Nationwide's board. He stops short of asking the society to float but insists it should give out some of its reserves.

The society yesterday warned of dire consequences for the UK mortgage market if members voted to convert to a bank. It said its mortgage and savings rates would worsen and it would be forced to focus on profits when offering savings products. A vote in favour would also remove a prime source of competition to banks, Nationwide said.

Brian Davis, the chief executive, defended mutuality, pointing out the society had given pounds 200m back to its members through better savings and mortgage rates and said this would rise to pounds 300m in 1998.

"I can't see why anyone should be surprised that building societies are having this renaissance," he said. "In the aftermath of last year's wave of conversions ... the distinction between building societies and banks is becoming increasingly apparent to consumers."

Abbey National yesterday boosted its rates by 0.25 per cent following the interest-rate rise last Thursday, the first mortgage lender to do so. Nationwide boosted its savings rates by 0.35 per cent without raising mortgage rates. Two other mutually owned savings groups - Standard Life and Bradford & Bingley - have also boosted rates.