Personal Finance: Mutually beneficial for society members

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MEMBERS OF a building society could benefit by an average of almost pounds 2,200 compared to a bank, by saving and holding a mortgage with a mutually- owned institution. But those likely to gain the most from a mutual are younger building society members with larger sums to save and bigger home loans.

This is the verdict of a series of surveys which also show building societies dominate the best-value tables for mortgages and Tessas.

In the past three years, nine out of the 10 cheapest lenders have been building societies, according to a report by the Research Department, an independent financial information provider.

A separate survey by MoneyFacts showed that a borrower with Coventry Building Society, the cheapest lender, would have paid pounds 3,985 in interest over one year on a typical pounds 50,000 interest-only variable-rate loan. The society's figures, however, look more favourable by virtue of being calculated on the basis of its "privilege" rate, which is 0.75 per cent lower for borrowers who stay with it for 61 months or more.

Other cheap lenders include Nationwide (charging pounds 4,070 for the same loan) Bradford & Bingley (pounds 4,082) and Yorkshire Building Society (pounds 4,106). Direct Line, a recent entrant in the home loan market, was second cheapest after one year (pounds 4,009) and also cheapest after three years.

The cheapest non-mutual over three years was Northern Rock in 11th place - although it too used its "loyalty" variable rate to arrive at an overall interest repayment of pounds 4,228. The next cheapest bank was Midland, which charged pounds 4,332.

For Tessas, building societies again led the pack, with 16 of the 20 top-paying providers. The best Tessa at the beginning of this month came from Norwich and Peterborough Building Society, and paid pounds 11,655 on a maximum pounds 9,000 investment. This was pounds 571 more than the worst provider, Yorkshire Bank.

Of the newly de-mutualised societies, Halifax came 17th out of 85, with a payout of pounds 11,537, while Alliance & Leicester, Woolwich and Northern Rock came 82nd, 76th and 63rd respectively.

Adrian Coles, director general at the Building Societies Association, says: "These surveys show that building societies are offering the most competitive deals."

Despite the good news for society members, a separate survey on behalf of Reuters suggests that there is a benefits threshold which mutuals must meet to retain loyalty. The threshold is set at pounds 2,200, the average free share handout from de-mutualising societies such as Halifax, Alliance & Leicester and others. Average benefits come close, at pounds 2,196 - the assumed amount for a borrower with 10 years to run on a pounds 80,000 mortgage and pounds 11,000 in a savings account.

To stay ahead in the loyalty stakes, societies should increase savings rates and lower borrowers rates even further, the report suggests.