UK building society diversification into estate agency 1987–1992: a case study of risk minimization and experimental strategies

The entry of building societies 1 1The primary purpose of a UK building society is to generate futids from individual rncrlibers for lending on owncroccupied residential property. Societics hold approsi~nately 47% of personal sector liquid assets and 62% of balances outstanding on loans for house purchase. into estate agency 2 2The traditional role of the estate agent is to act as an intermediary in negotiating the sale of dotnestic property. The agents acts 011 behalf of and is remunerated by the vendor. post-dated that of other financial institutions and represented the main thrust of initial diversification activity under the Building Societies Act, 1986. The move, by all but one of the largest 13 societies during 1987–1992, involved a departure from core activities and entry into an alien industry in terms of culture, practice and structure. This paper traces these developments, highlights the pitfalls in the diversification process and provides an evaluation of the risk minimization and experimentation strategies employed by building societies. While the data relates specifically to building societies the analysis has broader appeal both within financial services and across other industry sectors.