Banks vs building societies: where can you get the best mortgage rate?

When shopping around for a mortgage, you're increasingly likely to come across offers from building societies at the top of the table - so, could you nab a better deal by ditching the big banks?

Building societies have grown their share of the mortgage market in recent years, targeting home buyers and remortgagers with attractive deals. But whether you can benefit may depend on how much you're borrowing.

Here, we take a look at the best rates on offer from building societies for buyers with a range of deposits, and explain the pros and cons of getting a mortgage from a smaller lender.

Building societies increase share of mortgages

A new report by the Building Societies Association (BSA) claims that its members accounted for 57% of growth in the mortgage market during the first quarter of this year, approving more than 120,000 new loans.

The BSA claims that overall, building societies now hold nearly a quarter (23%) of outstanding mortgage balances, a figure that's increased 8% year on year.

Robin Fieth, CEO of the BSA, says this is in part down to the 'more personalised approach to mortgage lending' that building societies offer to borrowers with complex needs.

But how do their rates compare with the big banks? Let's look at the figures.

Building societies offer best rates on low deposit deals

We've crunched the numbers and found that buyers with small deposits can access market-leading introductory rates by choosing a building society rather than a bank.

On two and five-year fixed-rate mortgages at 90% loan-to-value (LTV), building societies match or beat the best introductory rates on offer from banks, while at 95% LTV they dominate the top deals.

That's because for buyers with a 5% deposit, the biggest banks are only offering comparative rates on their remortgaging-only products.

If you've got a bigger deposit, you may be able to access cheaper rates on a two-year fixed rate deal from a bank. On five-year fixed-rate deals, however, there's nothing to choose between providers.

The table below shows the best introductory rates currently available on two and five-year fixes at five popular LTV levels. Only deals available UK-wide were included in this table.

Banks v building societies: cheapest introductory rates

Does your building society offer mortgages?

Building societies come in all shapes and sizes, from provincial lenders to major national players such as Nationwide, Coventry and Yorkshire, all of which are among the top 10 biggest mortgage lenders in the UK, according to figures from UK Finance.

In the chart above, we focused on building societies offering their deals nationally, but some lucky borrowers could get a better deal if they happen to live in a specific area.

For example, Cumberland building society offers a market-leading rate on a five-year fix at 95% LTV. This deal is only available, however, to borrowers who live in West Northumberland, North Lancashire, Dumfriesshire, Cumbria and the NE45 postcode.

The table below shows which building societies currently offer mortgages, and the areas where they lend.

Pros and cons of building societies

Aside from appealing rates, building societies bean alternative if you're worried that the computer will say 'no' if you apply to a major bank.

That's because building societies tend to operate a more manual underwriting approach, considering your financial situation as a whole. This could help borrowers who are in unusual circumstances or don't necessarily tick all the boxes, including first-time buyers with small deposits or the self-employed.

On the other hand, it can take longer to get a loan over the line if you use a smaller building society, as a manual underwriting sometimes results in more paperwork and longer processing times.

Building societies: customer satisfaction scores

Offering a low-rate deal is one thing - but how do building societies compare in terms of customer service?

When we surveyed thousands of mortgage holders last year and asked them about the quality of service they received, six building societies featured in the top 10 lenders.

The biggest winner was Principality, which topped the charts with a customer score of 80%, Nationwide, which finished third with a score of 77%, and Coventry, which finished fifth with 76%.

Principality customers liked the lender's flexibility of payments, while Nationwide and Coventry customers gave top ratings for the clarity of their mortgage statements.

• Find out more:find the right lender for you with our reviews of the best mortgage lenders.