A web of intrigue

A new website which auctions low-cost homeloans to bidders over the internet this week claimed to have been swamped by hopeful applicants.

But rival brokers say the "market beating" deals it claims to offer can be matched or bettered elsewhere.

In its first week the site, MoneySupermarket.com, has received applications for more than £100m worth of mortgages. Borrowers put their details into the site, which passes them on to 14 lenders, including Woolwich, Bristol & West and West Bromwich.

The lenders bid for their business, and come back with offers within 60 hours at rates which they promise to be lower than they normally offer over the counter to new borrowers.

Auctioning mortgages is already highly successful in the US, where one website, the Lending Tree, completed some £1bn in homeloans last year.

However, the MoneySupermarket.com service is open only to home buyers who are seeking loans of £150,000 or more, although it says this will fall to £100,000 by November. It initially guaranteed that it would return offers within 48 hours, but put that back to 60 hours after receiving a flood of applications.

One of the first applicants wanted a £254,000 mortgage capped for two years with no redemption penalties. MoneySupermarket.com came back with an offer of 5.69%, which, it says, is better than the current best rate of 5.99%. However, it refused to disclose which lender had offered the deal. "We have an agreement with the panel of lenders that their bids will be confidential," says a spokeswoman.

John Charcol, perhaps the best-known mortgage broker in the UK, says it is "sceptical" of the deals offered by MoneySupermarket.com. Marketing manager Siobhan Hotten comments: "If you just glance down the mortgage tables, you can find a capped rate for two years of 5.75% offered by Chesham Building Society, while Bank of Ireland has a loan capped at 4.89% in the first year, followed by a discount after that."

MoneySupermarket.com chief executive Simon Nixon is unfazed by Charcol's criticism. He says: "The applicant requested a capped mortgage and we found them a 5.69% deal that Charcol hasn't been able to beat."

He adds that the nature of mortgage lending will allow MoneySupermarket.com to consistently offer some of the best deals in the market. "Lenders have peaks and troughs in the demand for mortgages, which they cannot control very well. The auction is a way in which they can bid for business when they are very quiet, at lending margins which are very low or even non-existent."

John Charcol questions MoneySupermarket.com's claims about the volume of business it is achieving. Applications worth £100m translate into around 400-500 mortgages - and Ms Hotten says many will fail because the applicant does not meet the lender's criteria or does not proceed with the loan.

One thing that the auction approach does prove, however, is that many lenders are more flexible on rates than they are normally willing to disclose to the public. It suggests that if you are considering remortgaging and moving to another lender, it is always worth trying to secure a better deal first with your existing lender by threatening to move elsewhere.