FOOL'S EYE VIEW
Britain's Cheapest Mortgages

By Cliff D'Arcy
January 8, 2004

Each year, independent financial researcher Defaqto ranks Britain's biggest mortgage lenders. It does this using these lenders' standard variable rates (the bog-standard rates paid by borrowers that don't have a special deal).

Usually, it's not a good idea to pay your lender's standard variable rate (SVR), because SVRs aren't as competitive as the lowest fixed, discounted, capped and tracker rates. In fact, you should become a 'rate tart', switching your home loan whenever you can do so without penalty. (Learn how in our free re-mortgage guide).

However, SVRs provide us with a useful benchmark with which to rank mortgage lenders. After all, it's fairly likely that lenders with high SVRs will overcharge existing borrowers in other areas as well.

Here are the results for Defaqto's 2003 survey, based on a £50,000 interest-only mortgage. It's important to note that this is a standardised survey: in reality, most borrowers don't pay standard variable rates (especially the smart ones). Furthermore, the average existing mortgage is close to £66,000 – and far more for new borrowers, especially in the South East.

In order to create a level playing field, these figures exclude any special loyalty deals or privilege rates. If we included these deals, West Bromwich BS would claim fifth place.

We award gold medals to these lenders (a round of enthusiastic applause, please):

Lender	Annual interest on £50,000	More expensive than Egg by	Effective SVR
Egg	2,286.44	-	4.57%
HSBC	2,300.77	14.33	4.60%
Nationwide BS	2,321.99	35.55	4.64%
Intelligent Finance	2,367.19	80.75	4.73%
Direct Line	2,447.81	161.37	4.90%

So, Egg wins 'Lowest Overall SVR', HSBC (LSE: HSBA) gets 'Lowest High-street SVR', Nationwide BS gets 'Lowest Building Society SVR', and IF gets 'Best Offset Mortgage SVR'. (Learn more about offset mortgages here.) In addition, these lenders all did well in last year's survey, which means that they are consistently beating their competition.

These five banks prop up the table, and win wooden spoons (much booing and blowing of raspberries!):

Lender	Annual interest on £50,000	More expensive than Egg by	Effective SVR
Bristol & West	2,866.59	580.15	5.73%
Alliance & Leicester	2,868.12	581.68	5.74%
Bradford & Bingley	2,868.89	582.45	5.74%
NatWest	2,884.52	598.08	5.77%
Royal Bank of Scotland	2,884.52	598.08	5.77%

The booby prize goes to RBS group for having Britain's highest SVRs, charged by RBS and NatWest.

As you can see, there's an enormous difference between the interest charged by Egg and RBS/NatWest. Thanks to having the highest SVR, borrowers owing £50,000 to these banks paid almost £50 a month more than identical borrowers at Egg!

One thing that sticks out like a sore thumb is that the UK's biggest mortgage lenders are ripping off their existing borrowers. In fact, HSBC was the only high-street bank placed among the ten cheapest lenders.

Here are the results for the ten largest lenders in the UK (the numbers in brackets rank these lenders by overall market share, from biggest to smallest):

Lender	Annual interest on £50,000	More expensive than Egg by	Effective SVR
HSBC (9)	2,300.77	14.33	4.60%
Nationwide BS (5)	2,321.99	35.55	4.64%
Halifax (1)	2,812.26	525.82	5.62%
Northern Rock (7)	2,826.63	540.19	5.65%
Bank of Scotland (1)*	2,837.26	550.82	5.67%
Abbey (2)	2,863.64	577.20	5.73%
Lloyds TSB/C&G (3)	2,847.12	560.68	5.69%
Barclays/Woolwich (4)	2,866.15	579.71	5.73%
Alliance & Leicester (8)	2,868.12	581.68	5.74%
Bradford & Bingley (10)	2,868.89	582.45	5.74%
Royal Bank of Scotland/NatWest (6)	2,884.52	598.08	5.77%

* Sister company of the Halifax

The average annual interest bill across all 31 lenders was £2,738.19, which equates to an average interest rate of 5.48%. With the honourable exception of HSBC and Nationwide BS, eight of the top ten lenders charged more than this. Given that the best special-rate deals are around 2-3% lower than these rates, you can see why paying a standard variable rate is hardly ever a good idea!

Thanks to lower interest rates, last year's interest bills were around 3% lower than 2002's. However, be warned: with interest rate rises on the way, the figures for 2004 will be rather higher.

So, when your next annual mortgage statement hits your doormat, don't just file it away. If you can move lenders without paying hefty penalties, it's time to weigh up your home loan against the best deals.

Visit our Mortgage Centre | Last Year's Survey.

The author owns shares in HBOS, parent company of Halifax and Bank of Scotland.