Building societies have been working to help first-time buyers (FTBs) get on the property ladder, but more support is still needed for new buyers, research from Moneyfacts has revealed.
The Building Societies Association (BSA) reported that most FTBs said mortgage affordability was the main obstacle, with 65% highlighting this as the biggest barrier.
Raising a deposit was also a challenge for 62% of potential buyers.
Additionally, research found that building societies have been offering lower average mortgage rates for FTBs with 5% or 10% deposits than the wider market.
On average, the seven largest high street banks offered even lower rates for 2-year and 5-year fixed mortgages at 90% and 95% loan-to-value (LTV).
At 90% LTV, the average 2-year fixed rate stood at 5.50% across all lenders, 5.20% for building societies and 4.70% for the main banks.
For 5-year fixed rates at 90% LTV, the averages were 5.33% across all lenders, 5.01% for building societies and 4.61% for the main banks.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Mortgage affordability remains a key issue among first-time buyers, who may be struggling to see how they can make their homeownership dreams a reality.
“The Government needs to propel its homebuilding plans, or we could be set for a rise in house prices. The good news is that mortgage rates have been coming down and this can give buyers more of a chance to secure a deal.
“Building societies are working hard to support new buyers, with 2- or 5-year fixed rate deals available to first-time buyers with a 5% or 10% deposit charging less on average compared to the market average in the same space.
“However, the biggest banks traditionally have more margin to price their mortgages lower, which is why they are undercutting the mutuals.”
Springall added: “Indeed, seven banks (Barclays, Halifax, HSBC, Lloyds Bank, NatWest, RBS and Santander) are priced lower, on average.
“Despite this, 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.
“Mutuals can also be more driven to create innovating products, such as the Track Record Mortgage from Skipton Building Society.”
She said: “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.
“At present, banks and building societies can do no more than 15% of their total qualifying loans.
“However, lenders have been given a nod to review their stress testing rules, with some of the biggest brands making changes over the past few months.
“This is a positive step if taken with care, to ensure borrowers are being supported, but most importantly feel protected.”
She added: “This month the Financial Conduct Authority (FCA) is expected to open a public discussion on the future of the mortgage market, so it will be interesting to see what transpires.
“Those borrowers who have exhausted their savings will need to consider ways of securing a mortgage, such as lengthening the term of their deal.
“According to UK Finance, the average first-time buyer mortgage term is now 31 years as of March, compared with 28 years a decade ago.
“The right choice of deal and term will come down to the individual, so it is imperative borrowers seek independent advice before they commit.”
