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Interest rate cut sees building societies struggle to compete with banks

Experts have recently announced that building societies may find it difficult to match the low interest rate mortgage products offered by banks, following the reduction in the Bank of England base rate.

According to mortgage experts, building societies were already finding it difficult to match the low rate deals offered by banks, which is likely to become even worse now that the BoE base rate is set at 0.25%. Building societies don’t have access to the multiple streams of income that a bank has in place. The money which a building society lends to customers is taken from the cash deposited.

Experts have also stated that some building societies haven’t been proactive in passing on the savings to customers as a result of the rate cut. The highest Standard Variable Rate held by a building society is the Yorkshire Building Society, at 5.79%.

According to research conducted by Coreco mortgage broker, on behalf of Telegraph Money, 74% of the best value fixed rate products for people with 40% deposits were being offered by banks. Of the two-year fixed rate mortgages for buyers with a 40% deposit, 24 out of 30 products were cheaper with a bank.

However, for 10-year fixed rate products, the difference between banks and building societies is slightly more even, with around half of deals being cheaper for two-year and five-year fixed rate deals. Speaking to a mortgage adviser will help a buyer to select the best mortgage, as they have been on a CeMAP training course.

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