Our monthly checks of the mortgage market have found that smaller building societies regularly offer some of the cheapest deals for people buying their first home. In contrast, the biggest lenders dominate the home mover and remortgage markets.
Here, Which? explains why it's worth looking beyond the biggest banks, how your postcode could unlock a lower rate and the key factors to consider before choosing a mortgage.
Why first-time buyers should consider smaller lenders
In our latest analysis, Beverley Building Society was among the lenders offering the cheapest deals for first time buyers. It was joined at the top of the table with Leeds Building Society, the UK's tenth-largest lender according to UK Finance, as well as Lloyds Bank and Virgin Money.In contrast, major providers typically dominate the best deals for those remortgaging. For example, Nationwide Building Society and Santander have been among the cheapest lenders for remortgaging over the past three months. Nationwide Building Society is also our only Which? Recommended Provider for mortgages.
We see a similar pattern for home movers, where Lloyds Bank and Nationwide Building Society have been among the cheapest lenders over the past three months.
Find out more:The smaller providers offering the best rates
Several smaller building societies regularly feature among the cheapest first-time buyer mortgage deals.
West Brom Building Society is one of the standout examples. When we checked on 23 July, it had the cheapest deals for some loan-to-value ratios for two-year and three-year fixed-rates. It has also regularly offered some of the cheapest 5% and 10% deposit mortgages, both when comparing the lowest rates overall and the lowest rates with no fee.
Another smaller provider that we see in the first-time buyer best rate tables is Newcastle Building Society. The lender offers a very strong 5% deposit mortgage with a five-year fixed rate.
These examples show why it's worth looking beyond the biggest banks when comparing mortgages. Restricting your search to household names could mean missing out on a cheaper deal.Find out more:Could your postcode unlock a better deal?
If you live in the right area, you may be able to access cheaper mortgage deals simply because of your postcode. Beverley Building Society offers better deals if you live within 50 miles of the Yorkshire town.
These rates can be very competitive. It offers the market-leading rate for a two-year fix for first-time buyers with a 5% deposit. Similarly, Furness Building Society, which has operated in the North West for more than 150 years, offers lower rates to 'local postcodes'. These deals are typically aimed at first-time buyers with smaller deposits. Our latest checks found that other lenders currently offer cheaper deals than its 'local postcodes' mortgages. Mortgage deals reserved for locals are quite uncommon, and even if you do qualify for one, it's not always going to be your best option. But they show why it's worth looking beyond the biggest lenders when searching for your first mortgage. Restricting your search to household names could mean missing out on a better deal.How to find the best deal for you
When choosing a mortgage, it's important to consider the entire deal, rather than just the headline rate. Some lenders add chunky fees to their 'cheapest' deals. These can be as much as £2,000. Once these are accounted for, the overall cost can be more than a deal with a slightly higher rate.Your current provider already knows your financial history and repayment habits, while a new lender will need to conduct a full affordability check before approving your mortgage.source https://www.which.co.uk/news/article/why-first-time-buyers-should-look-beyond-the-biggest-banks-aDsPL2v381hR