Building societies are working hard to help first-time buyers get onto the property ladder, but more needs to be done to support new buyers across the spectrum, says Moneyfacts.

An analysis by the independent service says that according to The Building Societies Association (BSA), two-thirds of first-time buyers said mortgage affordability is the biggest barrier to buying a home (65%). 

Raising a deposit was also highlighted as a significant obstacle to homeownership by 62% of would-be homebuyers.

First-time buyers comparing mortgages will find building societies on average price lower than the market averages (90% and 95% loan-to-value, for two- and five-year fixed mortgages).

Out of the seven biggest high street banks, the average rates combined are lower than building societies’ (90% and 95% loan-to-value, for two- and five-year fixed mortgages for first-time buyers), but the lowest rate deals might not be the best on a true cost basis.

Rachel Springall, the finance expert at Moneyfactscompare, says: “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 two- or five-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. 

“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.

“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. 

“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.”