Building Societies Offering Better Interest Rates Than Banks

Written by James Drury on 23 June 2016.

Many banks have taken advantage of the Government's Funding for Lending scheme to fund their mortgage books in recent years, and a lot of those still have a significant sum of cash left to use.

As a result, many would assume that mortgage rates from these providers would be significantly lower than those offered by the rest of the market, but our new research has found that this isn't actually the case, and instead, building societies are the clear winners when it comes to mortgage deals.

The figures show that average mortgage rates on offer from building societies can be as much as 0.50% cheaper than the same mortgage offered from a bank, and across all terms and loan-to-value (LTV) tiers surveyed, building societies win the day. Take a look at the table below to see for yourself:

"Building societies currently dominate the Best Buy tables and are beating the banks hands-down in the mortgage rate war," said Charlotte Nelson, finance expert at Moneyfacts, "which is disappointing considering the amount of Government help bigger banks have received.

"Despite all the money released by the Funding for Lending Scheme, banks are still failing to compete on cost. For example, our calculations show that borrowers opting for the average two-year fixed rate at 75% loan-to-value (LTV) would be £521.28 worse off in terms of repayments in the first year if they opted for a bank deal instead of a mortgage from a building society [based on a £200,000 loan over 25 years]."

Building societies are clearly making their mark on the mortgage market and are offering the lowest deals by far, and in even better news, this dominance isn't restricted to lower lending levels, because building societies shine at higher LTVs as well.

Indeed, the average five-year fixed rate at 95% LTV provided by building societies is a massive 0.50% lower than that offered by banks, so not only are they holding their own, but they appear to be committed to serving the first-time buyer market, too.

"Mutuals are designed to put customers first and aim to provide better deals for their customers," added Charlotte. "This is reflected by the fact that borrowers are being offered much lower rates by building societies compared to their banking rivals. They can also have a much more personal approach in terms of lending criteria.

"The gap between banks and building societies suggests that now is the time for borrowers to look away from the big banks and consider smaller mutuals for a more competitive and cost-effective deal."

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