Building societies continue to play a pivotal role in supporting first-time buyers with small deposits, but mortgage affordability remains a significant barrier to homeownership, according to new figures from Moneyfactscompare.co.uk and the Building Societies Association.

A survey from the BSA found that 65% of first-time buyers cited mortgage affordability as their main obstacle, while 62% pointed to the challenge of raising a deposit. These figures come amid ongoing pressure on the government to address supply-side issues in the housing market and ease access to mortgage finance.

Moneyfacts data shows that building societies are offering competitive deals to first-time buyers, with average rates across two- and five-year fixed products at both 90% and 95% loan-to-value (LTV) pricing below the wider market average. As of 30 May, the average two-year fixed rate for building societies at 90% LTV stood at 5.20%, compared to the all-lender average of 5.50%. At 95% LTV, the gap narrowed slightly, with building societies averaging 5.41% against a market average of 5.61%.

However, the largest high street banks — including Barclays, Halifax, HSBC, Lloyds Bank, NatWest, RBS and Santander — are undercutting both the market and the mutuals, offering two-year fixed rates at an average of 4.70% at 90% LTV and 5.06% at 95% LTV.

Rachel Springall, finance spokesperson 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.”

Springall noted that while building societies typically offer more favourable rates than the market average for high-LTV loans, the largest banks are able to price even lower due to scale and margin. Nevertheless, she emphasised that mutuals have advantages when it comes to tailoring offers and providing innovative products, pointing to Skipton Building Society’s Track Record Mortgage as an example.

She added that while headline rates are important, the overall cost of borrowing — including fees and incentives — may make building society products more appealing for some borrowers.

The number of deals available also reflects the building societies’ commitment to the sector. At 95% LTV, mutuals offer 48 two-year fixed deals and 57 five-year fixed options, compared to just 16 and 17 respectively from the big seven banks. In many cases, mutuals are more flexible in underwriting and product development, which may provide a lifeline to those with limited savings.

Despite these efforts, structural limitations remain. Many lenders, including building societies, are constrained by the current loan-to-income rules introduced over a decade ago. These rules limit the number of loans exceeding a 4.5 times income multiple to 15% of new lending. The industry has been calling for reform to allow more flexibility in supporting first-time buyers.

Springall also pointed to recent changes in lenders’ stress testing approaches following regulatory updates. “This is a positive step if taken with care, to ensure borrowers are being supported, but most importantly feel protected,” she said.

IMMINENT CONSULTATION?

The Financial Conduct Authority is expected to launch a public consultation on the future of the mortgage market this month, which may signal further change. In the meantime, affordability constraints are pushing more borrowers to stretch their mortgage terms. According to UK Finance, the average first-time buyer mortgage term reached 31 years in March, up from 28 years a decade ago.

Springall urged borrowers to seek independent advice before choosing a deal, noting that longer terms can reduce monthly payments but increase overall interest paid.

As the housing market continues to shift and regulatory discussions evolve, building societies are likely to remain central to the support network for first-time buyers. However, without broader policy changes and new supply, their efforts alone may not be enough to resolve the sector’s affordability challenge.