A building society is a financial institution in the United Kingdom that is owned by its members rather than by shareholders. Its customers, chiefly savers and home buyers, are its owners: they vote at the annual general meeting and elect the board. A building society takes savings from the public and lends most of that money back out as a mortgage on residential property.
Building societies are a form of mutual organisation, close cousins of the credit union and of the savings and loan associations (thrifts) of the United States. In the UK they are governed by the Building Societies Act 1986, authorised by the Prudential Regulation Authority (PRA) and regulated for conduct by the Financial Conduct Authority (FCA). To a customer, a society looks much like a high-street bank; the difference lies in who owns it and what it is allowed to do.
Building society in plain terms
Picture a street where everyone wants to own a house one day. Instead of each family saving alone for years, they agree to pool their savings in one shared pot. Whoever needs a home first borrows from the pot and pays it back, with interest, so the pot keeps growing for the next family. Nobody outside the street owns the pot, and any surplus stays inside it.
That is the idea behind a building society. The early societies of the late eighteenth century worked almost exactly like this, and some closed once every member had a house. Modern societies are permanent and far larger, but the shape is the same: members' savings in, members' home loans out, and no outside owners taking a dividend.
History and the 1986 Act
The first recorded society, Ketley's Building Society, was formed in Birmingham in 1775, and the sector marked its 250th anniversary in 2025. Through the nineteenth century societies grew into permanent institutions, and by the twentieth century they dominated British home lending.
The Building Societies Act 1986 modernised the sector at the same time as the Big Bang deregulation of the City. It let societies offer a wider range of services, such as a current account with a chequebook and cards, and it also gave members a route to vote to turn their society into a company. Abbey National was the first to convert, in 1989, and a larger wave followed in 1997, when societies including the Halifax, Woolwich, Alliance & Leicester and Northern Rock became banks and handed members free shares. Many of those converted firms were later taken over, and Northern Rock's failure in 2007 became a byword for a bank run.
How building societies work today
The 1986 Act, as amended, keeps societies close to their original purpose through two main limits:
- The lending limit. At least 75% of a society's business assets, broadly its loans, must be fully secured on residential property.
- The funding limit. At least half of a society's funding must come from shares held by individual members, that is, from retail savers rather than wholesale markets. Parliament has adjusted how this limit is calculated, most recently with the Building Societies Act 1986 (Amendment) Act 2024.
A saver who opens a savings account with a society usually becomes a member through a "share account". Despite the name, these are ordinary deposits for the saver: they can be withdrawn, they earn interest, and they are protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person per institution since 1 December 2025. Profits are kept as reserves or returned through better rates, rather than paid to outside shareholders, which is the main argument societies make for being cheaper over time.
As of 2025 the Building Societies Association said it represented all 42 UK building societies. Nationwide is by far the largest, and in 2024 it bought Virgin Money, which kept its separate brand. Many societies are small and local, with a handful of branches in one town. Most offer savings, mortgages and, in some cases, a deposit account or current account.
Building societies compared with banks
| Feature | Building society | Bank (plc) |
|---|---|---|
| Owners | Members (savers and borrowers) | Shareholders |
| Main business | Retail savings and home loans, by law | Any lawful banking business |
| Funding | Mostly retail savings | Retail deposits plus wholesale markets |
| Use of profit | Reserves and member pricing | Dividends and reserves |
| Deposit protection | FSCS | FSCS |
The restrictions cut both ways. Because societies cannot easily raise share capital, they build bank capital mostly from retained profit, which can slow growth. On the other hand, their reliance on retail bank deposits rather than short-term market money made the remaining societies more stable than several converted banks during the 2007–2009 crisis.
Similar mutual lenders elsewhere
The building society model spread through the Commonwealth. Australia, New Zealand and Ireland have had building societies, though many have converted or merged. In the United States the closest equivalents are mutual savings banks and savings and loan associations. Germany's Bausparkassen run a related contract-savings scheme for home purchase, and cooperative banks in many countries follow the same member-owned principle. Islamic home finance, which avoids riba, is offered by some lenders in Britain but is a separate model, not a mutual one by definition.
Whatever the country, the trade-off is the same: member ownership keeps the lender focused on savers and borrowers, while the limits on business and capital raising keep it smaller and simpler than a full commercial bank within the wider banking system.