Mutual lenders often tailor deals that may cost less over time
High street banks may offer lower mortgage rates for first-time buyers, but one finance expert warns that the cheapest deal on paper doesn’t always deliver the best overall value once fees and incentives are considered.
Analysis from price comparison site Moneyfacts shows that while the UK’s largest banks — including Barclays, Halifax, HSBC, Lloyds Bank, NatWest, RBS and Santander — currently provide lower average rates on 90% and 95% loan-to-value (LTV) two- and five-year fixed mortgages, building societies may offer more cost-effective options over the life of the loan.
“Building societies are working hard to support new buyers, with two- or five-year fixed rate deals available to first-time buyers with a 5% or 10% deposit charging less on average compared to the market average in the same space,” said Rachel Springall (pictured) of Moneyfactscompare.co.uk. “Despite this, mutuals can tailor their ranges to provide best choice for those with small deposits when all the costs and incentives associated with the mortgage are included.”
While headline rates from high street lenders often appear more attractive, they may come with fewer perks or higher upfront fees, making some building society deals more competitive on a true-cost basis, Springall pointed out.
Mutuals, which are not shareholder-driven, often focus on offering flexible products and added-value features designed to support niche borrower segments, including those with limited deposits or complex financial backgrounds. “Mutuals can also be more driven to create innovating products, such as the Track Record Mortgage from Skipton Building Society,” Springall added.
With affordability remaining a major barrier — 65% of first-time buyers cite it as their top concern, according to the Building Societies Association — brokers are being urged to help clients look beyond interest rates alone and assess the full cost of borrowing.
As the market continues to shift, and the Financial Conduct Authority prepares to open a discussion on the future of lending rules, advisers say it is increasingly important for buyers to compare deals holistically and seek professional guidance.
“The right choice of deal and term will come down to the individual, so it is imperative borrowers seek independent advice before they commit,” Springall said.
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