Building societies offering cheaper mortgages

Mortgage 5

The best rates on a range of mortgages are currently being offered by building societies, rather than banks, according to the latest industry data.

Figures compiled by Moneyfacts indicate that fierce competition in the mortgage market has carried over from 2016, with many providers vying for housebuyers’ attention.

However, the most competitive fixed-rate deals are currently being offered by building societies, which are offering the lowest rates regardless of deposit contribution or length of term.

Major savings

Currently, the average two-year fixed rate for a 60 per cent loan-to-value (LTV) mortgage from a bank is just 1.92 per cent, but building societies are offering the same deals at an average of just 1.67 per cent - a 0.25 per cent saving.

The savings are even greater when applied to a 75 per cent LTV mortgage, with two-year deals being 0.58 per cent cheaper with a building society (1.74 per cent) compared with a bank (2.32 per cent).

There is also good news for first-time buyers, as those with a five per cent deposit are benefitting from an average two-year mortgage rate of 3.71 per cent from building societies – 0.4 per cent cheaper than banks (4.11 per cent).

Long-term offers

Those looking for longer-term deals are set for even greater savings on building society mortgages, with an average rate of just 4.01 per cent for a 95 per cent LTV mortgage over five years; 0.64 per cent lower than the average bank mortgage (4.65 per cent).

The biggest saving of all is observed on five-year 75 per cent LTV fixed-rate deals, where the average building society deal is 2.34 per cent - 0.66 per cent lower than the average bank deal (3 per cent).

Charlotte Nelson, finance expert at Moneyfacts, said that although banks seem to be making more of a fuss about their low-cost deals, the best rates are actually being offered by building societies, and by a significant margin.

She added: "Building societies are making their mark on the mortgage market, leaving the banks behind in their wake. It seems that despite mortgage rates falling to record lows, banks are still failing to compete on cost.”

FTB benefits

One important note is that the lowest deals are not exclusive to buyers with large deposits, as plenty of opportunities exist for people to get on the property ladder by taking advantage of a competitive rate.

According to Moneyfacts calculations, customers opting for a five-year fixed rate 95 per cent LTV deal on a £200,000 home could be £71.98 a month better off, on average, if they were to choose a deal from a building society rather than a bank.

Charlotte said a key reason for this is that building societies also have a lot more flexibility when it comes to their approach to underwriting, meaning they can provide a more personal and personalised approach.

She added: "The gap between the banks and building societies suggests that now is the time for borrowers to look away from the big banks and consider something closer to home for a more competitive and cost-effective deal."

It comes after the latest Halifax House Price Index revealed that the price of the average UK home increased by 2.7 per cent between October and December; the largest quarterly rise in almost two years.

Use our mortgage calculator, created with the Mortgage Advice Bureau, to work out the best deal for you.

 

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