Banks vs Building Societies: Who is currently winning the battle of the rates?

Warren Lewis
5th February 2018
question 55

According to the latest Moneyfacts data, when it comes to mortgage rates, Building societies continue to offer borrowers a better deal - as an example, the average five-year fix is 0.41% lower from a building society than from a major bank.

And a five-year fixed rate is 3.00% on average from a bank, but 2.59% from a building society.

The gap between the average five-year fixed rate at 90% LTV is even wider at at 72bps, with building society rates averaging 2.94% compared to 3.66% from a high street bank.

The difference between two-year fixed rates is smaller, with the average rate at 2.33% from a bank and 2.27% from a building society.

Charlotte Nelson, finance expert at Moneyfacts, said: “The difference in price of the average two-year fixed rate between these rivals has shrunk over the years, due to this being a key focus for all lenders. However, even in this extra-competitive area building societies offer borrowers a slightly better deal.

Borrowers have traditionally looked to the short-term to keep their options open if anything changes, and the main banks do all they can to remain competitive in this key area. However, with such a large gap between the two rivals it appears that building societies are clearly starting to look beyond the short-term and offer borrowers appealing rates for five-years as well.

Incredibly, the average five-year fixed rate mortgage at 90% LTV from a building society is a whopping 0.72% lower than those offered by the main banks. This represents a saving of £76.30 a month, if borrowers opt for the average five-year rate (at 90% LTV) with a building society (2.94%), instead of the similar average from one of the main banks (3.66%).

This wouldn’t be a surprise to first-time buyers, especially as all the places in the Best Buys chart in this sector go to building societies. Building societies clearly want to be seen as supporting first-time buyers, and offering lower rates is just one of the ways they can do this. This group of lenders also tend have a more flexible underwriting process, allowing to them to consider the needs of these borrowers.

Interest rates are expected to rise in the near future and as a result, borrowers are starting to consider their options. With such a large gap between the main banks and building societies, perhaps it is time, for borrowers to consider looking away from the high street to get the most cost-effective deal, particularly over the longer term.”

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