Building societies rank high for cheap mortgages

Published on Friday 4 January 2008 20:27

ALTHOUGH a bank, HSBC, was the cheapest mortgage lender in 2007 for existing borrowers, building societies took two of the top five places and five of the top ten.

In its annual survey, Defaqto, an independent financial data collection and research company, found that for standard variable rate (SVR) mortgages or their equivalent for existing borrowers, HSBC retained its top spot as the cheapest mortgage, closely followed by two building societies, Skipton and Nationwide.

Scottish banks did not fare well – Bank of Scotland was named as most expensive, followed by the Royal Bank of Scotland and the Clydesdale Bank.

The research was based on the amount of gross interest payable on a 50,000 interest-only mortgage provided by top lenders in 2006, as defined by the Council of Mortgage Lenders (CML). In order to provide a level playing field for comparisons, specialist providers were not included, and neither were any privilege or loyalty rates.

Borrowers with HSBC paid 3,361.99 in 2007 for their mortgage, which was 532.39 cheaper than the most expensive deal.

David Black, principal banking consultant at Defaqto, said: "In 2007 there were three increases in the Bank base rate and one decrease so it is not surprising that the average cost of servicing a standard variable rate mortgage for the largest lenders rose last year by 14 per cent over the cost in 2006.

"While it is acknowledged that standard variable rate mortgages are only one type of mortgage, their importance may be increasing due to the knock-on effects of the credit crunch, making it more difficult to obtain attractive alternative deals."

Given the availability of competitive mortgage deals is expected to reduce further, people would be advised to shop around as soon as possible.

Bob Pannell, CML head of research, said: "Borrowers should make a New Year resolution to review their finances and plan ahead if they are coming off fixed rate deals later this year."