Find the best, shun the rest

Exit penalties

Some lenders have lured borrowers with low interest rates, and then used the threat of hefty early redemption penalties to force them to stay several years after their attractive deals ended.

Northern Rock building society caused an outcry by doing this in 1995. Under huge public pressure, it was forced to back down and now says that it would never do this again. Most lenders' penalties are now less harsh, but you need to be wary.

Compulsory cover

Many lenders used to force borrowers to take out buildings and contents insurance with them, and many charged over the odds for it.

Although the practice is less common, it still exists. The Skipton, Newcastle, Bristol & West and even What Mortgage's 'top lender of the year', the Chorley & District, charge 'compulsory insurances'. This adds about 0.25 per cent a year to your costs, according to London & Country Mortgages. On a £100,000 loan, this costs £250 a year.

Fickle firms

Be wary of firms without records in the mortgage market, especially if they are not backed by recognised names.

Some have attracted borrowers and only then jacked up the interest rate. This has tended to happen when they have decided not to try to attract new customers, and no longer cared about bad publicity.

Interesting sums

Having your outstanding interest calculated daily rather than annually can save you nearly £4,000 over the life of a £50,000 repayment mortgage.

Under 'daily calculations', your outstanding liability is recalculated each day, so the capital element in your monthly payments is reduced immediately.

If, however, your lender does the sums annually, your payments will not be totted up until the end of the year, so you will not get the benefit of some of them until 12 months after paying.

The Government's Ca' standard mortgages, which conform to conditions on Charges, Access and Terms, must have daily interest.

Local lenders

Good deals can be achieved with the smallest building societies. Some have more than 100 years of trading history, and they are tightly regulated by the Building Societies Commission. Many now reach out nationally through the internet.

Quick service

Lenders are increasingly trying to compete on service as well as charges and products. Intelligent Finance and Abbey National, for instance, have speeded up their decision-making. In some circumstances, they can now agree loans in principle within a few minutes.

A small society might give a far better, more personal service, but it could be slower if it has not updated its systems recently.

Vanishing charges?

Lenders eager for your business often drop the upfront charges they levy to arrange fixed or discounted mortgages.

Some also help in other ways, for example by refunding the surveyor's fee. Watch out for firms which charge - perhaps £10 - to replace lost statements.

Loan stars

Top 10 lenders over 10 years - from What Mortgage? Format (Lender, Amount paid ?)

1 Chorley & District Building Society 62,182
2 First Direct 63,098
3 Penrith BS 63,640
4 Chesham BS 63,660
5 Stafford Railway BS 63,829
6 Tipton & Coseley BS 64,480
7 Cambridge BS 64,521
8 Kent Reliance BS 64,756
9 HSBC 64,978
10 Newbury BS 65,011


Source: Network Data

Note:

The figures are based on the amount of money a borrower would have paid to each lender on a ?70,000 interest-only mortgage over 10 years.