Other more ethical options
Building societies are seen as a more ethical option than banks due to the fact they lend mainly in the housing market rather than other more unethical sectors. You can read more about building societies in our guide to savings accounts.
Building societies are also mutuals, which means legally they are owned and run for the benefit of their members, rather than shareholders. Not having to generate extra profit for shareholders also means building societies should be able to give customers better deals than banks do.
However, there have been criticisms that directors of many building societies are still helping themselves to large pay packets. Many are listed in our 2018 article on Director’s Pay. Only Nationwide paid its director over £1million, with a payment of £3.4m in 2016. It therefore got a mark in our Anti Social Finance category.
Many building societies ‘demutualised’ in the 1990’s, and become more like banks. Several former mutuals failed in the financial crisis, and others that were still mutual had to be taken over by other building societies or banks.
“They came unstuck due to excessively risky commercial and residential property lending funded by unstable wholesale funding – just as the banks did.” Luckily, restructuring after the credit crunch has “forced building societies to focus again on the core functions that too many had forgotten – long-term stable deposit-taking and prudent, good-quality mortgage lending”.
All the mutuals featured on the table above (including the EBS) pick up an additional mark in our scoring system for company ethos due to their more democratic structures. Mortgage customers are also members, and are able to vote to influence how the society is run.
However, there has been criticism that in practice, they are not all as democratic as they could be. According to the Building Societies Association themselves, “Several societies have introduced a “quick vote” option to their AGM voting form to make it easier for members. Here the member has to cross just one box, and the Board will be appointed to vote on the member’s behalf.”
It is possible to switch mortgage provider in the middle of a mortgage period. Normally this is done for financial reasons, but could be done for ethical reasons too. It may involve up-front costs such as having a property surveyed again.
Whether switching, or as a first time buyer, ordinary repayment mortgages are always best from an ethical point of view. Interest-only, or ‘endowment’ mortgages of which there has been much mis-selling in previous years and which rely on stock market investments, will always be problematic ethically – as well as riskier financially.