Traditionally, if you were looking for a large mortgage in the UK – one in excess of £1million - then you would be unlikely to approach a building society because they have typically had relatively low lending limits and offered much smaller loans than this. But there are now plans in the UK to alter the rules governing building society lending so mutual lenders could soon be in a position to compete for high value mortgage business with the major banks, private banks and other lending institutions.

UK Building Societies such as the Nationwide, Chelsea and Yorkshire will, under new proposals by the UK Government, be allowed to change the way in which they raise funds for lending to their members and non-members seeking a substantial loan. Currently only half of a building societies funding can be obtained from individuals and institutions which are not members of the society; the other half having to come directly from the society's own investors, borrowers and savers.

These changes are due to come about following recommendations from the Independent Commission on Banking and the main advantage, once the changes are implemented, will be a relaxing of funding rules to allow building societies to borrow on the wholesale money markets. The UK Government is committed to increasing the amount of choice and diversity in financial services and believes that building societies could play a vital role in this area.

In the current global economic slump, wholesale funding is expensive so the benefits of this change may be slow in appearing for the individual mortgage borrower who is currently struggling to obtain the mortgage they need due to increasingly stringent lending criteria and a limited number of institutions prepared to authorise high value loans, but it does present alternative options for future borrowing. Unfortunately, that future may be a long way off with the economic slump looking set to continue for some time to come.

Building Societies in the UK have around 25 million customers and have very different, lower risk business models to the major high street or retail banks so have traditionally been used by the average homeowner taking out a regular mortgage to buy a family home rather than by millionaires seeking a very large mortgage. But any legislation that increases competition in the mortgage market could only be a good thing for borrowers who could benefit from this greater competition with reduced lending rates and a wider choice of products.