Building societies fear new rules

Excessive commercial property loans undermined the Dunfermline

Building societies say planned new regulation will make it difficult for them to compete with banks.

Proposals from the Financial Services Authority, the City watchdog, include plans to limit riskier types of lending by building societies.

These could include high loan-to-value mortgages for borrowers with small deposits and buy-to-let mortgages.

The Building Societies Association (BSA) says that the proposals would disadvantage the industry.

The BSA has made a formal submission to the FSA following a consultation period on the proposals.

'Discriminatory, anti-competitive'

Adrian Coles, director general of the BSA, said the proposed regulation would have a "discriminatory and anti-competitive effect in the mortgage market".

"The FSA wants controls to make sure mutuals operate safely in the future, but if you start restricting buildings societies, it is hard for them to diversify and the sector won't be able to react to market drivers," he said.

He added that the new rules, should they come into effect, would weaken the sector by "uniquely fettering its ability to compete".

The FSA declined to comment.

Building societies hold 20% of retail bank deposits and have a share of more than 20% of the mortgage market.

The FSA also wants societies to have senior managers who are sufficiently skilled to oversee any riskier lending.

The plan follows in the wake of the collapse of the Dunfermline building society and the forced rescue of several other societies last year.

When the Dunfermline building society collapsed in March, it was discovered that it had made loans worth £628m secured on commercial properties.

Little of this was evident in the society's published accounts, even though the FSA had been warning the society about the potential risks of its move into commercial property lending, and self-certified mortgages, since 2005.