UK: Building Societies' Asset Growth Tops 14%

The buoyant housing market helped to push asset growth in the building society sector to over 14%, according to KPMG's annual survey of building societies' financial performance which was published today (1 September 2000).

There was an 8% overall rise in property transactions in England & Wales and 12% increase in the average value of gross advances for house purchase. Whilst total UK gross advances increased by 28% between 1998 and 1999, total net advances jumped from £25 billion to £37 billion, an increase of 48%. This sharp increase reflects, in part, the entry of a number of very aggressive competitors into the residential mortgage market during the latter part of 1998 and early 1999, most notably Egg.com and Standard Bank.

Commenting on this, Richard Gabbertas, who heads KPMG's Building Societies Unit, said:

"In relative terms, the building society sector continued to outperform the banks in capturing a higher share of net lending in relation to their natural share of total outstanding balances - 23% at December 1998 and 1999. In contrast, the bank sector captured a 57% share of net lending in 1999, compared with 70% of outstanding mortgage balances. This suggests that it was largely the existing mortgage banks who lost market share to the new entrants in 1999."

Despite the explosion in web-sites and other internet-based services within the financial sector, distribution within the residential mortgage market has continued to focus on established channels. In fact, mortgage transactions undertaken largely via the internet accounted for less than 1% of all transactions in 1999. The share of telephone-based 'direct' business has grown from around 5% in the mid-1990s to almost 10% in 1999, whilst brokers' share of the market has grown from around 45% to almost 55% over the same period.

Richard Gabbertas said:

"This shift towards the 'direct' and broker channels has largely been at the expense of branch-based service, but following a decade-long trend of branch closures, 1999 saw the number of building society branches remaining broadly level."

The sector's total reserves in relation to assets ratio shows a slight rise while the overall net interest margin for the sector has continued its slow decline, being directly influenced by intense competition at margin level. However, the sector's total management expenses ratio has remained almost unchanged, with many of the larger societies' expenses growing at the same rate as total assets.

Accepted as a leading industry guide, the Building Societies Database, now in its tenth edition, is produced by KPMG Financial Services. It is compiled from a review of all 69 societies' latest financial statements up to and including those for years ended in March and April 2000. The societies are performance ranked within three peer groups which are based on asset size.