First-time buyers looking for lower interest rates and a more tailored approach to their mortgage application could be better served by the building societies, independent research has found.
Analysis of loans aimed at the first-time buyer market, where deposits of around 10% or even 5% are common, has discovered the average rates for a two-year fixed deal are slightly below the sector average at building societies.
What’s more, the researchers behind Moneyfacts ‘Residential Mortgage Analyser’ said building societies used a more tailored approach when assessing applicant’s suitability and risk, something which suited first-time buyers.
The Moneyfacts report, which scrutinised the two-year fixed-rate deal mortgages on offer across the market for borrowers with small deposits, discovered rates had fallen since the Bank of England increased its base rate in August 2018.
This meant average two-year fixed-rate mortgages for borrowers who had a 10% deposit and therefore needed to borrow 90% of their property’s value, currently stood at 2.68%.
Focusing in on the building societies, however, and the average rate sinks to 2.62% – this is 0.06% below the sector average and 0.11% less than the typical rate offered by the non-mutuals lenders.
Lifeblood of the market
Darren Cook, finance expert at Moneyfacts, said there seemed to be a concerted drive by both building societies and non-mutuals to secure the mortgage business of first-time buyers, who were the lifeblood of the market.
Recent mortgage lending figures have shown first-time buyer numbers were at record highs at the start of this year and those stepping onto the property ladder made up a large proportion of new business for lenders.
Cook said: “It is encouraging to see that potential first-time buyers could be benefiting from some healthy competition between mortgage providers and being aided by reduced mortgage rates.”
Borrowers with 5% deposits
Building Societies also appeared to be nailing the market for borrowers who could only stump up 5% of their property’s value as a deposit.
Indeed, Moneyfacts looked at two-year fixed rates for borrowers who needed a 95% loan, and were therefore slightly more risky. In this sector building societies were offering an average rate of 3.35% which is 0.10% lower than the average rate offered by other mortgage providers.
Further up the deposit scale, for those with a healthy 40% deposit, however, building societies were slightly more expensive – offering rates which were, on average, 0.09% higher than non-mutuals.
Choice for borrowers
When it comes to choice, building societies offered 31% of the mortgages which were for borrowers with 10% deposits. In the 5% deposit sector, building societies offered 43% of the deals available.
Cook said this highlighted the mutuals’ willingness to compete for the business of first-time buyers.
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