Building societies could soon be offering cheaper mortgages and loans as the Treasury consults on changes to the building societies legislation to help lenders who are close to their funding limits.

Speaking at the Building Societies Association (BSA) annual lunch, Ed Balls, economic secretary at the Treasury, said its proposed changes should enable societies to raise more, generally cheaper, wholesale funding and facilitate the provision of cheaper and better products.

The changes relate to offshore deposits and the contents of summary financial statements, directors’ reports and annual business statements – as well as certain financial amounts specified in the 1986 Building Society Act.

Currently, individuals’ deposits in building societies’ offshore subsidiaries are treated as wholesale funding in measuring compliance with the funding limit. This is anomalous since such funding has more in common with retail funding and should therefore be excluded from the funding limit calculations.

A number of the financial limits for building societies under the Act were last reviewed in 1999 – and a number have not been reviewed since before then.

Ed Balls said: "Taking these steps should relieve pressure on building societies who are close to their funding limits. We will continue our programme of monitoring the legislation and, where necessary, updating it using the existing powers within the Building Societies Act."

Rachel Le Brocq, spokesperson for the BSA, said it welcomed the proposals which it believes will make building societies even more competitive in the marketplace.

She said: "The changes will mean those building societies with overseas subsidiaries will be able to use a greater proportion of wholesale funding, which is generally cheaper than retail funding.

"This will mean better value for customers, and cheaper mortgage products."

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