History of Building Societies
Building societies originated in the self help movement of 18th century Britain. Working men (typically in the Midlands and the North of England) began to pool their funds in organisations from which they could borrow to build houses. In 1775, the first known society was formed - Richard Ketley's, at the Golden Cross Inn, Birmingham. The earliest societies were 'terminating'; this meant that they were wound up when all their members had been housed. The last remaining terminating society in existence (First Salisbury) was dissolved in March 1980.
In the 1840s a new development took place with the Permanent Building Society, where the society continued on a rolling basis, continually taking in new members as earlier ones completed purchases. They accepted deposits from members with no intention of building - they became institutions for saving and borrowing as well as mortgage providers. The first known permanent society was formed in 1845 - The Metropolitan Equitable. By the 1860's there were over 750 societies in existence in London and 2,000 in the provinces.
Building societies were fully mutual – they were owned by the members and run for their benefit. Mutuality was a popular and successful business model in the 19th and 20th century: well-known organisations such as the Co-op, John Lewis Partnership and the AA were all mutual societies.
The main legislative framework for the Building Society was the Building Society Act of 1874, with subsequent amending legislation in 1894, 1939 and 1960. In the 1980s, British banking laws were changed to allow building societies to offer banking services equivalent to normal banks. The management of a number of societies still felt that they were unable to compete with the banks, and a new Building Society Act was passed in 1986 in response to their concerns. Just 3 years later, the Abbey National passed a resolution enabling it to convert to plc, and bank, status. This was an option given under the new Building Societies Act. In 1995, Cheltenham & Gloucester Building Society also converted to plc (and bank) status and became part of the Lloyds Bank Group. This was the first example of a society using the provisions in the 1986 Act to be taken over by an existing organisation.
Other building societies soon followed the demutualisation path: the industry's largest society, Halifax Building Society, converted to plc, and bank, status, in 1997, along with Alliance & Leicester, Bristol & West, Northern Rock and The Woolwich. A movement arose whereby investors would open a savings account with a mutual building society, thereby getting voting rights in the society, and pressurise for a vote on demutualisation, with the intent of getting a windfall payment as a result. As a result, most of the remaining societies modified their rules of membership in the late 1990s to ensure that anyone joining a society would be unable to get any profit out of a demutualisation for the first few years. With the chance of a quick profit removed, the demutualisations began to slow considerably.
By 2002, the number of members of The Building Societies Association had fallen to 65, with total industry assets of over £170 billion. Six years, after a number of smaller societies had merged with larger ones, this figure had fallen to 59.