A report by the Building Societies Association has laid bare problems within the building society sector which saw lending in 2009 fall by 50% compared to 2008 figures. Last year saw a total of £18.6 billion loaned out by the building society sector against £37.5 billion in 2008. So what has caused this major slump in building society lending?

Those who follow the building society sector will be well aware that this is a sector which depends more and more on savings to fund their loan operations. They are nowhere near as active in the money markets as traditional UK banks and have seen their financing costs increase dramatically over the period. There are also claims that banks bailed out by the government have been using their power in the savings market to squeeze the building society sector and take more of this vital area of finance.

This fall of 50% comes despite the fact that lending by the building society sector increased by 15% alone in December 2009. As more and more traditional banks continue to squeeze savings rates higher, in the knowledge that they can loan money at a higher rate, this is causing problems within the building society sector where perhaps there is not the same financial power.

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