Log on to big deals from little lenders

If you want a good mortgage deal, consider one of the smaller building societies. Names such as the Derbyshire, the Market Harbor ough and the Stafford Railway are starting to crop up regularly in best buy tables.

When the Bradford & Bingley, the second-biggest soci ety, becomes a bank on 4 December, the number of societies will fall to 67. But many of those remaining are making a strong case for mutuality through their mortgage and savings deals.

The Bradford & Bingley has been widely criticised for sacrificing lower charges for members in the interests of future shareholders. Its standard variable rate mortgage, for instance, is now 7.64 per cent - significantly more than the 7.29 per cent charged by the Nationwide, the largest building society.

But if you really want a keen rate, try the Stafford Railway's rate of 6.99 per cent. On a £60,000 mortgage, you would be nearly £400 a year better off than with the B&B.

Stafford Railway, the 56th largest society, was formed in 1877 by a group of railway workers. It has assets of just £69 million, making it one fourteen-hundredth the size of Halifax Bank, the UK's largest lender with assets of £93 billion.

Stafford Railway director Peter Blocksidge says: 'We've always lent nationally. But the business that we got outside the area tended to come from people with Stafford connections - children of people who had a mortgage in the area. In more recent times, we've had greater exposure to newspapers and magazines.'

And, of course, the internet: the society has been a popular choice for people choosing a mortgage using the new website, E-loan. This site, launched in the new year, allows homebuyers to give their requirements, and get a list of deals that would best match them. Stafford Railway - which offers just one mortgage deal, its simple, no fees, 6.99 per cent variable rate - is listed frequently.

E-loan director Frank Eve says: 'If it wasn't for the site, consumers wouldn't know about this sort of smaller society at all. The site allows smaller societies to have internet capabilities.'

Many smaller societies already have their own websites, but these will not be visited much if the public has not heard of them.

Adviser London & Country Mortgages says business has been shifting towards small societies in the last three to four months. Spokesman Patrick Bunton said: 'Some of these relative tiddlers have become more competitive. Perhaps they think that they have got to get their message across better to survive. We are recommending them on a very frequent basis.'

In a best-buy table produced this month, London & Country listed 15 lenders, covering discounts, caps, flexible loans, fixed rates and trackers. A third were smaller societies.

The Chesham, for instance, was picked out for its 5.75 per cent two-year cap, rated the best on the market. The Chesham - formed in 1854 and the oldest society - has assets of £154m and three branches in prosperous Buckinghamshire. It was doing well, but decided two years ago to seek business nationally.

'The internet opens new doors for us,' says spokesman David House. 'From a standing start about 18 months ago, 30 per cent of our business is now generated outside the local area. We can demonstrate the benefits of mutuality. Something very important to us is good service. You have to be able to manage the service. You can get flooded with applications when you appear in a best-buy table.'

Other names regularly recommended by London & Country include the Universal, based in Newcastle, and regionally based societies such as the Cheshire, Derbyshire and Nottingham. Bunton says that their service is usually extremely good - and fast: 'If there are only two branches, the decision-makers are very close to the business. The culture tends to be much more customer-focused.'

Few of London & Country's clients are put off from taking a loan with a small society. Building societies are well-regulated and, after all, they are lending you the money rather than you depositing yours with them. E-loan believes the smaller societies can be extremely innovative. A small but dynamic society lending just £20m a year can easily monitor its new deals, make any changes needed and launch a loan aimed at only 100 homebuyers. Big lenders are far less nimble.

Many small societies realise what the internet can do for them. The Cheshire - highlighted by London & Country for its five-year fix, pegged at 6.45 per cent - plans to allow online mortgage applications within a couple of months. 'The internet is making it easy for customers to do business with us,' says director Frank Harrington. 'It has let smaller organisations do business on a wider basis.'

So perhaps it's 'so long Bradford & Bingley, hello Cheshire and Chesham'.

Contacts

www.uk.eloan.com
www.srbs.co.uk
www.cheshambsoc.co.uk
www.cheshirebs.co.uk