Building societies are “working hard” to support first-time buyers

Mutual lenders offer lower-than-average interest rates and innovative deals to help new buyers get on the property ladder.

While mortgage rates have been on a downwards trend in recent months, it continues to be a challenging market for those looking to take their first steps into homeownership.

Around two-thirds (65%) of first-time buyers cited mortgage affordability as the biggest barrier to buying a home, with 62% highlighting the difficulties of raising a sufficient deposit, according to recent data from the Building Societies Association (BSA).

Furthermore, many first-time buyers who do get approved for a mortgage may find the monthly payments a challenge, with UK Finance finding that mortgage payments now make up the highest proportion of homeowners’ income since the financial crisis in 2008.

Extending the mortgage term can make monthly payments more affordable, and many first-time buyers seem to be doing this to be able to afford a mortgage. Indeed, data from UK Finance shows that the average mortgage term for first-time buyers has risen to over 31 years. But, while a longer mortgage term can improve affordability, it makes the mortgage more expensive overall as borrowers have to pay interest over a longer period.

Nevertheless, despite the affordability challenges in the mortgage and housing market, there are reasons for first-time buyers to be positive.

Many lenders, particularly building societies, offer a range of mortgage deals to those who may have a smaller deposit, while a public discussion on the mortgage market, which is expected to be opened by the Financial Conduct Authority (FCA) this month, could benefit first-time buyers in the long-term.

Finding the best first-time buyer rates

Analysis of the mortgage market by Moneyfactscompare.co.uk found that the average first-time buyer rates offered by building societies are lower than the average rates across all lenders.

For example, the average two-year fixed rate at 90% loan-to-value (LTV) and 95% LTV on building society deals stood at 5.20% and 5.41% respectively. This compared to an average of 5.50% and 5.61% across all lenders.

However, the seven biggest high street banks offer even lower rates on average than building societies, with average two-year fixed rates of 4.70% (90% LTV) and 5.06% (95% LTV).

Data correct as of 30 May 2025. Deals shown are available to first-time buyers, but not exclusive to them, deals exclude adverse credit options.

*Barclays, Halifax, HSBC, Lloyds Bank, NatWest (including its intermediary arm), RBS and Santander

“The biggest banks traditionally have more margin to price their mortgages lower, which is why they are undercutting the mutuals,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Despite this, it’s important to consider that the deals with the lowest rates may not offer the best overall value and may not be the most suitable option for all borrowers. As well as the interest rate, it’s worth looking at the extra features that may be included in a deal, such as a free valuation, free legal fees or a cashback offer, in addition to any product fees that may apply.

“Mutuals can tailor their ranges to provide best choice for those with small deposits when all the costs and incentives associated with the mortgage are included,” Springall noted.

She adds that building societies may “also be more driven to create innovating products, such as the Track Record Mortgage from Skipton Building Society”.

Could changes to lending rules help first-time buyers?

Lenders run “stress tests” as part of a mortgage application to assess whether a mortgage will continue to be affordable for borrowers should rates increase. These can be relatively strict and there have been concerns that they are preventing some potential homeowners from accessing a mortgage that they could afford to repay.

Consequently, earlier this year the FCA highlighted the flexibility allowed under its stress-testing rules, which prompted several major lenders, including Santander, HSBC and Lloyds, to reevaluate and relax their stress tests. This is designed to help borrowers (who can afford it) to get approved for a mortgage and borrow larger amounts, with first-time buyers one of the main groups likely to benefit.

While Springall comments that this is a “positive step”, she cautions that it needs to be “taken with care”. It’s important that borrowers don’t stretch themselves too far and still only take out a mortgage that they can comfortably afford.

In the longer-term, the FCA is due to launch a public discussion on the future of the mortgage market, covering a range of elements including what more can be done to support homeownership.

Among the areas that may come under review are the loan-to-income (LTI) rules.

The current rules dictate that lenders can only offer mortgages with an LTI ratio of 4.5 or more on 15% of their total new residential mortgage approvals in a year, which could particularly affect first-time buyers who typically need to borrow larger sums.

“It has now been more than a decade since the current loan-to-income (LTI) rules came in play and many mutuals have been calling for these to be relaxed to give them more scope to lend more to first-time buyers,” Springall commented.

As lenders and borrowers wait to see what changes, if any, there may be to the mortgage market, those looking to buy a house in the near future may find it useful to speak to a mortgage broker.

A broker can help you work out the right kind of mortgage for your situation and filter through the deals available to find the mortgage that best meets your requirements.

Speak to an award-winning mortgage broker today