This is Money / Daily Mail opportunity

ended 26. May 2022

A journalist at This is Money / Mail Online is working on a piece about smaller regional building societies and when/why borrowers should consider getting a mortgage with one. They're appearing at/near the top of a lot of the rates tables at the moment which is unusual - eg: 

60% LTV 

Family BS 2.44% £1,349 fee (2 year)

Skipton BS 2.74%, no fee (2 year)

Skipton BS, 2.69%, no fee (5 year) 

75% LTV

Yorkshire BS 2.45%, £1,495 fee (2 year)

Yorkshire BS 2.69%, no fee (2 year)

Cambridge BS 2.54%, £199 fee (2 year) 

Leeds BS 2.71%, no fee (2 year)

Leeds BS, 2.58%, no fee (5 year)

Yorkshire BS, 2.55%, £1,495 fee (5 year) 

Cambridge BS, 2.69%, £199 fee (5 year)

80% LTV

Ipswich BS 2.45%, £1,358 fee (2 year)

Yorkshire BS 2.74%, no fee (2 year)

90% LTV 

Yorkshire BS 2.70%, £245 fee (2 year)

Furness BS, 2.99%, £250 cashback (2 year)

95% LTV

The Nottingham 2.82%, £999 fee (2 year)

Skipton BS 3.08%, no fee (2 year)

Skipton BS, 3.31%, £1,000 cashback (5 year)

I think a lot of borrowers might not consider one of these lenders, especially if they're not using a broker, as they might not have heard of them of prefer to stick with a well-known high street name. So I'm looking to explain: 

  • Why they are suddenly offering better rates than some big banks - how are they able to do this? 
  • Are there any restrictions on who can get a mortgage with a regional building society - are there any that say you must come from the area? 
  • What the pros and cons are compared to a big four bank?

And equally, looking at the rates above a lot of the five years are now cheaper than two - we did report on this when the trend first started, but keen to get an update on how widespread it now is and whether it will continue. 

Any comments would be appreciated by end of today. 

7 responses from the Newspage community

Building Societies can sometimes raise their money differently than banks, lending from deposits of savers rather than solely relying on swap markets. This gives them a distinct advantage over banks during a rising interest rate cycle. Some smaller regional building societies place restrictions on who can get a mortgage; typically, it's at high LTVs, and they'll stipulate you must come from the area, such as 95%LTV with Darlington BS, Furness BS or Mansfield BS. Often building societies have a more flexible lending policy and offer a more manual human approach where you can talk directly to an underwriter and explain a case which allows them to approve loans that most of the big banks would shy away from as they have a more computer says no attitude if you're outside the box.
Regional building societies have always offered great value borrowing to customers in certain situations. Unlike the big high street banks, they have to pick their battles more carefully, so tend to aim for a certain part of the market at any given time. Sometimes only in a smaller geographical region. Borrowers might not consider these lenders, simply because they don't know about them, or perhaps feel less confident about using them. This is the value of using a mortgage broker to source the best overall deal. They have access to, and will always recommend, the cheapest overall mortgage suitable for the applicants circumstances and priorities. At a time, when many are feeling the financial and economic noose tightening, making a saving on what is likely the biggest financial outgoing most people have, could take some pressure off.
With rates rising, smaller regional building societies tend to be competitive as they are lending their own money from deposits. Some do sometimes have quirky eligibility criteria such as a requirement to live in a certain area. However a good whole of market broker should be able to find the best rates/product for your individual circumstances.
It is rare for smaller building societies to compete in price alone simply because their funding is generally off balance sheet, but, in a rising market that can give them an advantage, so make the most of it. However, be warned, smaller lenders do not have the capacity of the big players so they often deliberately price to avoid being in the spotlight as they can be quickly drowned under a flood of applications, service levels drop and the experience for new borrower and lender employee is not great. So, if you are looking to grab a good rate prepared for a wait and possibly some frustration along the way. Dont let the journey take focus away from the destination and just be kind if the experience is a little lumpy, once the deal completes you can brag about it to your friends. Building societies are fundamentally different to banks and are there for their members and to help people own homes. As such, you can find a more personal approach and often they are more willing to consider something where "computer says no".
People should absolutely consider regional Building Societies when looking for a mortgage, in fact many will offer a better and more customer focused experience than many of the big banks. Many years ago, these smaller Societies would often have restrictions to their lending footprint, so you had to live in a certain geographical area, happily all but the smallest Building Societies have done away with this practice now, but you may find they have special deals for more local borrowers. The reason we are seeing smaller lenders appearing with better rates that the big Banks at the moment is more about service and business levels. Many of the biggest lenders have seen sustained business volumes at well over their normal levels, to protect service levels and allow their teams time to cope with the applications they already have, they have increased rates to effectively take themselves out of the market. Challenger Banks, Regional Building Societies and Specialist Lenders all have a valuable place in the mortgage market, even when they are not offering market leading rates, as they will often have more accommodating criteria than the main Banks for those that have complex incomes, unusual property, or poor credit. Many people are on the housing ladder due to these types of lender and you should never rule them out.
Smaller, regional building societies have offered fantastic solutions for niche borrowers such as self-employed, expat and larger landlords for several years. They combine good service with a flexible, 'case by case' approach to underwriting, allowing them to service sectors and borrowers the big banks are unable or unwilling to consider. If they are currently competing on rate with major lenders that presents a win-win for borrowers, to access market-leading rates from serviceled lenders.
The main reason we believe the smaller building societies are now in a position to have more attractive rates vs the big 6 is down to current service levels. Most of the high street lenders are currently swamped with applications and service levels within them are shocking. In a normal market, you would expect an application to be reviewed within 1-4 working days. However, we are currently seeing lenders taking in excess of 10 working days. Many have increased their rates further to reduce in the influx of applications to try and return to a more manageable service level. Meanwhile, the smaller building societies are now utilising this opportunity to increase their market share. With some of the smaller building societies, many customers who don't use a broker won't of heard of them and may be put off due to the unfamiliar names. In a normal market, we'd typically find the well-known lenders may be quicker at assessing an application but with how the industry is currently we will likely see a better service level from localised lenders. Although none of us have that magical crystal ball to say where rates will go the fact that rates are now cheaper on a 5 year fixed would imply lenders see a squeeze on interest rates in the near future but the longer-term outlook would see a return to some normality.