The Building Societies Act 1986 (Amendment) Bill – which will enable Building Societies to increase lending – was included as part of the “wash up” late last week, as Parliament prepares to dissolve on May 30 ahead of the general election on July 4.
Labour MP Julie Elliot introduced the amendment as a private members bill in December in an attempt to “level the playing field” between mutuals and banks.
When the original bill was introduced in the 1980s, it included a 20% money market cap which restricted the amount of cash building societies could raise, placing a heavier burden on their members.
Over time this limit has been raised to 50%, which will still be maintained by the amendment, although the bill proposes that three specific types of funding are excluded from the calculation.
If passed, this will enable mutuals to raise more cash from external sources.
The three types of funding intended to be excluded will be:
Funds accessed from the Bank of England in stress scenarios.
Sale and repurchase agreements for types of liquid assets building societies hold as capital buffers.
Forms of loss-absorbing debt building societies may hold to ensure that, should the business fail, investors rather than taxpayers bear losses.
Robin Fieth, Chief Executive of the Building Societies Association, said: “The new act will help level the playing field for the UK’s building societies and give them the capacity to lend more into the economy.
“It’s high time the 1986 act was updated to reflect the needs of today’s economy. The changes brought in by this new act will drive greater competition in the mortgage market, which will give mortgage customers more choice, and support a healthy marketplace.”
