Building societies attract record savings

Building societies attracted record savings of more than £16 billion over the course of 2007 according to the latest figures.

The Building Societies Association (BSA) said that this figure was double the £8.3 billion inflow of 2006.

The previous record was in 1988, when £13.6 billion was deposited as savers reacted to the stock market crash of October 1987.

Adrian Coles, director-general of the BSA, said: “2007 was a bumper year for building society savings. The majority of the deposits came in the latter months of 2007, so a significant proportion is almost certainly funds withdrawn from Northern Rock bank.

He added that a “considerable amount” would be from households increasing the amount they saved in order to prepare for an uncertain year ahead.

Societies also raised a net funding of £19.1 billion in the wholesale markets in 2007 compared with £13.5 billion in the previous year.

Much of the cash was received in the last quarter of the year following the Northern Rock crisis.

Meanwhile the Council of Mortgage Lenders’ revealed record lending in 2007.

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Negative equity from 110 per cent mortgages

So-called ‘110 per cent’ mortgages, which do not require an initial deposit from holders, are becoming an increasingly popular option among home buyers, with house prices in the UK growing fast.

First-time buyers in particular, who tend to be younger and have little or no savings, find them particularly appealing.

However, industry experts, including those at Baronworth Investment Services, counsel against seeing taking out such a mortgage as a risk-free endeavour.

Michael Brill, a director at the company, said that the ideal 110 per cent buyer was “The young professional… who hasn’t got a deposit and knows they are going to have a nice increase in salary in a couple of years time.”

However, he warned that “if we have a crash in property with a negative equity from a 110 per cent mortgage”, holders “could end up with further negative equity.

“That is one of the big disadvantages”, Mr Brill surmised.

The Council of Mortgage Lenders (CML) recently revealed that the proportion of first-time buyers in the UK rose from 48 per cent to 56 per cent in 2006.

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