Building societies are member-owned institutions found in the United Kingdom and British Commonwealth countries that provide members with a variety of deposit account and lending options, similar to the products offered by banks. Most building society loans are mortgage products, but members can also borrow personal loans. Small businesses owned by members can also apply for commercial loans.
The most popular building society loans are mortgage loans used to buy or refinance residential property. Fixed loans have interest rates that do not change for at least five years. Variable rate loans have rates that are linked to the base rates set by the national government. These loans tend to have lower rates than fixed mortgages, but the rates change on a monthly basis and in theory can rise above the rates available on fixed loans. Building societies also offer loans with minimal down payment requirements that are aimed at first time home buyers.
Unconventional building society loans include offset mortgages. These loans work like fixed rate loans, but the lender bases monthly payments on the amount the borrower owes minus any funds the borrower has at the building society in savings. The borrower can choose to spend the savings at any time, and doing so leads the building society to proportionately increase the monthly payments. Investors can use buy-to-let building society loans to buy investment homes with minimal down payments.
Building societies write both secured and unsecured personal loans with fixed and variable interest rates. Secured personal loans are typically used to buy or refinance cars, motorcycles, recreational vehicles, or boats. The term lasts for between two and seven years and if the borrower defaults, the building society can repossess the vehicle used as collateral. Unsecured personal loans have higher interest rates than secured loans, reflecting the greater risks associated with loans that have no collateral. Borrowers must have both good credit scores and high income to qualify for personal loans because term times are short, which leads to high monthly payments.
Business owners can borrow building society loans secured by their primary residence or a commercial property. Secured business loans normally take the form of revolving credit lines with variable interest rates. Small businesses can also secure loans against equipment or company owned vehicles. Building societies assist start up businesses by offering unsecured lines of credit to members. People wishing to buy out existing businesses can use special purchase loans offered by many building societies.