Our mutual friends beat Scrooge banks

An increasing number of would-be home owners are saying “ ba humbug” to tight-fisted Scrooge banks and opting to get their mortgages from building societies — known as mutuals. And experts say it is often a route to a better deal.

Lending by mutuals hit £3 billion in October 2012, up by 29 per cent from the previous year and giving them almost a quarter of all the mortgage lending during the month.

Adrian Coles, director-general of the Building Societies Association, said the figures were “further evidence that building societies and other mutuals are lending more to those looking to buy a home.” It’s certainly true for first-time buyers, who received about one in three of the loans made by mutuals.

“Mutuals are also offering more competitively priced products,” Coles adds. And that’s borne out by independent analysis: the average mortgage rate offered by building societies in October was 4.18 per cent - which compares to 4.39 per cent across the market, according to Moneyfacts.

The banks may offer occasional super-cheap mortgages, but they tend to go to only those with squeaky clean credit ratings and large deposits. By contrast, institutions owned by their members, rather than shareholders, are now making serious inroads into the mortgage market.

They often use a more individual approach, rather than relying on a ‘computer says no’ (or yes) method. So it’s worth thinking beyond the banks and approaching these societies about a home loan, says David Hollingworth, of broker London & Country.

“The mutual sector covers a very broad range, from a supertanker like Nationwide that are happy to compete with the big banks through to very small local societies –all provide useful variation in the mortgage market with some small providers offering a real alternative,” Hollingworth says.

“They can be less rigid and may not use a scoring system, enabling a common sense approach to be used. They can also offer some innovative deals such as higher LTV for a first time buyer where a parent can help with the finances.” Bath and National Counties Building Societies both offer these.

“That said the big lenders have greater scale and small lenders will not always be able to stretch to the level of lending. However they certainly price good value mortgages and offer vital competition and choice - any forays into 95 per cent has tended to come from building societies.”