FOOL'S EYE VIEW
Good, Bad And Ugly Mortgages

By Cliff D'Arcy
July 8, 2003

However, there is hope for us all, but only if we shop around for the best deals. Previously, we've explained how to tackle your credit cards and find a better personal loan. But if you're serious about defeating your debt, the best place to start is with your mortgage. There are around 11.5 million mortgages in the UK, which works out at around £61,400 per loan. Luckily, help is at hand, with the release of the latest figures from financial bible Moneyfacts.

Every six months, Moneyfacts ranks the UK's 35 biggest mortgage lenders according to their standard variable rates (the SVR is the bog-standard rate charged to all borrowers that aren't on special-rate deals). Here are the results of Moneyfacts' survey for June 2003:

Rankings are based on the annual interest charged on a £100,000 interest-only loan. The figures in brackets identify the UK's ten biggest mortgage lenders.

The Good (the five lowest SVRs - switch to these lenders and save)

Lender                  Interest(£) Rate%
Egg                       4,689      4.69
HSBC/First Direct (9)     4,702      4.70
Nationwide BS (5)         4,707      4.71
Intelligent Finance       4,817      4.82
West Bromwich BS          4,983      4.98 (for borrowers of at least 5 yrs standing)

All other mortgage lenders charged interest rates of more than 5.1% over the last year, making these five lenders our winners by miles. Therefore, if you want a low SVR:

• you could scramble over to online bank Egg (LSE: EGG)
• on the high street, pop into your local branch of HSBC (LSE: HSBA)(NYSE: HBC) or Nationwide
• for an offset mortgage with a great rate, apply to First Direct or IF here.

The Bad (higher-than-average interest rates - start looking for a better deal)

Lender          Interest(£) Rate%
Halifax (1)          5,717  5.72
Bank of Scotland (1) 5,767  5.77
Northern Rock (7)    5,797  5.80 (for borrowers of less than seven years' standing)
Newcastle BS         5,813  5.81 (for borrowers of less than five years' standing)
Britannia BS         5,855  5.86 (for borrowers of less than five years' standing)

It's worth pointing out that the Halifax, Britain's biggest mortgage lender, charged £1,027 a year more than Egg for the same loan - ouch!

The Ugly (the ten most expensive lenders - don't delay, switch today!)

Lender                   Interest(£)   Rate%
Cheltenham & Gloucester (3) 5,883      5.88
Barclays Bank (4)           5,897      5.90
Woolwich (4)                5,897      5.90
Bradford & Bingley (10)     5,897      5.90
Bristol & West              5,897      5.90
Bank of Ireland             5,898      5.90
Alliance & Leicester (8)    5,901      5.90
NatWest (6)                 5,910      5.91
Royal Bank of Scotland (6)  5,910      5.91
Abbey National (2)          5,944      5.94

Yet again, the UK's second-largest mortgage lender, Abbey National (LSE: ANL), wins the unpopular title of Britain's Most Expensive Mortgage Lender. Borrowers stung by Abbey National's SVR shelled out a staggering £1,254 more than Egg customers over the last year - that's around £104 a month extra.

It's worth noting that the 'Bad' and 'Ugly' lists include eight of Britain's ten biggest mortgage groups, with the praiseworthy exceptions of HSBC and Nationwide BS. What's glaringly obvious is that the high street giants almost always charge far more than online, specialist and mutual lenders . The golden rule is: the larger your lender, the more you pay. When it comes to mortgage lenders, big rarely means beautiful!

Across all 35 lenders, the average annual interest bill totalled £5,642, which is £773 more than Egg. This equates to an average interest rate over the last year of 5.46%.

Summary

Unless your mortgage is with one of the lenders in our 'Good' list (or you're already on a special-rate deal), you should shop around to slash your repayments. Don't worry if you can't remember the exact interest rate you're paying, or how much your monthly mortgage repayments are -- most borrowers are in exactly the same boat.

• Contact your mortgage lender to demand a better deal: ask what special deals it offers to new borrowers and switchers. If you can cut your rate by, say, 1.5% to 2%, you should go for it. Obtaining a better deal from your existing lender means you don't pay switching costs such as legal and valuation fees, which is a cheap, easy and convenient way to get a better home loan.
• For more advice, read how to choose a mortgage and how to measure up mortgages.
• Don't forget to shop around for the best special-rate deals, including discounted variable, fixed and tracker rates.
• You can find two Best Buys in our Mortgage Centre, plus check out our 21st Century Mortgage Guide or ask for advice on our Mortgage message board.

Our thanks go to Moneyfacts for providing the data for this article.

The writer owns shares in HBOS, parent company of both Halifax and Bank of Scotland, and has a tracker mortgage with Abbey National.

More: My Three Biggest Financial Fears | Debt Is Costly, Despite Low Interest Rates