Best mortgage: First Direct

The winner of the mortgage category has always prided itself on being different. First Direct pioneered stand-alone telephone banking and offers customers the choice of telephone or internet for its range of financial services.

But First Direct has also championed the offset concept, which allows customers to reduce the interest they pay, or pay off the mortgage early, by offsetting credit balances in their savings and current accounts against the mortgage loan, and only pay interest on the difference. First Direct launched its first offset mortgage three years ago and has since lent more than ?4.5bn.

However, across all products First Direct likes to differentiate itself through what it calls "legendary" customer service. It may have introduced the notion of 'remote banking', but First Direct has concentrated on treating each customer with a human touch via the phone or through the internet. Readers have recognised these efforts as, when voting First Direct as the winner in the mortgage category, they reported a considerably higher degree of satisfaction than its nearest competitors.

The bank's aim is to offer market leading service, value and flexibility. It says it achieves this by giving customers access to their mortgage information 24 hours a day; offering competitive interest rates; and providing total flexibility in its mortgages by allowing unlimited overpayments, payment holidays and no redemption penalties. The bank says customers can get a mortgage approval in principle and book a valuation online or over the phone.

First Direct claims to have had the most satisfied banking customers in the UK for the past 12 years and to have been the UK's most recommended bank over the same time period - a boast backed up by researchers at MORI. In addition, the Virtual Online Banking Survey indicates that First Direct has some of the most satisfied online banking customers - the bank has come top in the monthly survey in two out of the past four months.

Maintaining this level of satisfaction is extremely important to the bank's chief executive, Alan Hughes. "We work extremely hard to keep our customers so happy that we are recommended every five seconds," Hughes says. "But we enjoy ourselves at the same time, which I think our customers sense and react positively to when they speak with us."

Mr Hughes is a big fan of the offset mortgage concept. "We all work hard for our money and offset makes our money work harder for us," he says. "Customers can keep hold of their finances and make every pound count because every penny in their day-to-day savings and current accounts helps reduce the interest on their loan. This helps customers pay off their mortgage quicker and for less, and it is flexible so you can change it to suit you."

The popularity of offset is increasing. According to the Council of Mortgage Lenders, around one in 10 new mortgages is now offset, and this percentage is expected to rise to 20-25% over the next few years.

User friendly

Ann Carr, a marketing communications manager working in the public sector, says she switched her mortgage to First Direct because she finds the bank "so user friendly. I use telephone banking as I can access it when it's convenient to me. The staff are always upbeat and sound as if they are really interested in you rather than treating you as just one of a million customers.

"I shopped around for a mortgage, but First Direct offered a competitive deal and dealt well with my questions - even when I called them at 10.30pm. I also like the fact that I can make overpayments on my mortgage so that I can pay it off early."

A year in mortgages

· The housing boom appeared to be over when Bank Of England figures showed the number of mortgages approved in July recorded its steepest monthly fall since 1990. · Five interest rates since November 2003 have seen standard variable mortgage rates rise to around 6.75%. The rises mean that someone with an average new mortgage of ?112,000 has had to find an extra ?80 a month over the past year. · Debt and the fear of negative equity is reappearing. The Nationwide estimates that 240,000 people are having difficulties meeting monthly mortgage repayments because of the five interest rate increases. · Mervyn King, the governor of the Bank Of England, warned in June that "anyone entering or moving within the housing market should consider carefully the possible future paths of both house prices and interest rates". In other words, prices could fall while rates rise. · A 12-month investigation by Professor David Miles culminated in a report published in March which concluded that certain aspects of the mortgage market are "intrinsically undesirable and unfair". Professor Miles' proposals to create a fairer mortgage market were brushed aside by a low-key response from the chancellor, Gordon Brown.

Mortgage tips

· Find yourself a better deal, especially if you are on a standard variable rate. There are numerous fixed and tracker rates offering lower interest charges. · Pay off your mortgage early. Making regular additional repayments on your mortgage will help you pay the loan off earlier and reduce - by thousands of pounds - the amount of interest you have to pay. · If you have an interest-only mortgage, such as one linked to an endowment or Isa mortgage, consider switching to a repayment mortgage. You will gain the certainty of knowing that your mortgage debt will be paid off and you may even be able to pay it off early. · Look for cheaper household insurance. One of the easiest ways to reduce your monthly mortgage expenses is to shop around for your buildings and contents insurance. · Review your mortgage regularly. Keep a close eye on new, possibly better deals and consider remortgaging if your property increases in value - you may be able to take advantage of borrowing against a lower loan to value. Many lenders offer significantly better terms for people borrowing less than 75% of the value of their property.