The flight to quality

Savings inflows to building societies last month were a new March record at £1.26 billion. This compares with inflows of £0.7billion in March 2007, and represents a 70% increase. The March figure is the latest in eight months of outstandingly high savings figures for societies, and further demonstrates the resilience of the building society business model in the current financial services market.

With building societies receiving some 70% of their funding from the retail market, their continuing strength in attracting savings has meant that the problems in the wholesale markets have had less of an impact on building societies than on some competitors who are more dependent on wholesale funding.

Commenting on the figures, Adrian Coles, Director-General of the BSA said: "Against the current uncertain economic climate, building societies are seen as tried and tested, traditional and trusted. Together with the competitive rates of interest they offer, these attributes mean societies continue to attract record levels of savings.

Building societies have never relied on wholesale funding to the same extent as many other lenders, and these substantial saving inflows indicate that building societies are less exposed to the restricted availability of wholesale funds than other lenders."

Mr. Coles continued: "Lending at building societies was down year on year. This is partly due to building societies withdrawing products and increasing rates on new lending so that they do not become overly competitive.

For example, as other lenders withdrew from the market, some building societies found themselves offering best buy deals and were inundated with applications. They too were then forced to limit their lending, not because of funding difficulties, but in order to preserve the high levels of service that distinguish building societies from other providers.

Furthermore, this may also be due to a greater level of uncertainty in the housing market causing prospective buyers to hold back until the direction of house prices becomes a little clearer."