Forget banks, borrow from a building society

Homeowners looking to remortgage or wannabe first-time buyers hunting for their first home loan: look beyond the big banks. Latest figures suggest the best deals - and most willingness to lend - can come from Britain’s building societies
Homeowners looking to remortgage or wannabe first-time buyers hunting for their first home loan: look beyond the big banks. Latest figures suggest the best deals - and most willingness to lend - can come from Britain’s building societies.

The level of mortgage lending by building societies and other mutual lenders jumped 58 per cent in March compared with the same month a year earlier, and by 40 per cent in the first quarter of this year. A bit of that rise can be attributed to the higher number of first-time buyers sprinting into the market this spring to make the most of the stamp duty holiday, which ended on 24 March.

But that doesn’t account for all of the jump. While Britain’s biggest banks are busy putting up rates because their cost of borrowing from wholesale markets has gone up due to the eurozone crisis, building societies fund far more of their mortgages from their members’ saving deposits. Because they are more reliant on savers, their costs have not risen as much, and deals may be more generous.

Top mortgage offerings at the moment include a competitive five-year fix from Norwich & Peterborough (now part of Yorkshire Building Society) at 3.74 per cent. It has a £795 fee and is available at 75 per cent loan to value. Smaller societies can offer attractive rates too: Loughborough Building Society offers a three-year fix at 3.15 per cent to 75 per cent LTV with a low fee of £499.

Meanwhile, building society behemoth Nationwide last week cut fees including its five-year fixed rate mortgages from £900 down to £450, trimmed all remortgage rates by up to 0.2 per cent, and cut its three-year fixed rate mortgages by 0.1 per cent.

But these deals won’t last forever. “Eventually building societies will feel the effects of the higher wholesale costs, because banks will increasingly turn to retail funding, and that will make the savings market more competitive, and push up costs for building societies,” says David Hollingworth of London and Country Mortgages.

“For now, they are taking a bigger share of lending because they are offering better deals. Nationwide is well placed, Coventry has been consistently competitive, and Yorkshire and Chelsea (which are part of the same group) have continued to be aggressive in pricing.”

Since the deals may soon disappear, anyone thinking of moving or remortgaging should get a move on. “For now, some of the big banks are just not showing the same level of appetite for lending so building societies are taking up some of the slack - but whether they’ve got the capacity to continue doing that is up for debate.”

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