Home loans go under the hammer

A website wants to make mortgages cheaper by the dozen. But, ask critics, how can the deals be right for everyone?
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The mortgage market's answer to eBay was launched last week and swamped straight away by consumers searching for a cheap home loan.

But brokers sore at the prospect of losing business are already questioning whether the website, Mortgagebundles. com, can supply the bargains that it promises.

Borrowers are required to enter just nine pieces of information about themselves, including the type of loan they want, their employment status and credit history. These details are used to "bundle" similar customers together for lenders, who then take part in an online auction for their business. The winner is simply the one who offers the most competitive deal, as determined by Mortgagebundles.

Potential customers then receive an email saying they have been successfully "bid for" in the auction, with details of the winning mortgage deal. They are under no obligation to proceed, but can do so by filling in an online application form. Since the lender knows only the most basic details about the consumer when the auction takes place, the application could still be rejected later.

For lenders, Mortgagebundles offers a useful way of gaining new business - cheaper than advertising and quicker than the standard interviews between a customer and a mortgage adviser in a high-street bank or building society branch. So far, more than a dozen lenders have signed up, including Nationwide but not the Halifax, Britain's biggest mortgage lender (although it says it's keeping a "watching brief").

Glenn Morrill, co-founder and operations director of Mortgagebundles, says the process costs consumers nothing and is hassle-free. "We put the borrower in a position where their business is fought over by lenders. Those looking for a competitive mortgage can have access to the UK's key lenders, knowing that the service will squeeze out a cheaper deal within around two days."

His theory is that lenders can offer consumers a cheaper deal than they normally would because of the bulk of new business on offer. But Nationwide 's involvement in the scheme appears to undermine this claim. This is because the building society pledges to offer the same deals to all its customers, making it impossible for the lender to offer special products to Mortgagebundles clients.

"We view it as simply another channel to sell our existing mortgages," says Nationwide spokeswoman Tamsin Hemsley. "The deals are the same as those available in our branches and on our website."

So far, Nationwide is the only lender to publicly admit it has paid Mortgage- bundles the monthly fee of £1,000 to £1,500 to participate. It will also pay a "procuration" fee of 0.24 per cent of the loan size for every completed deal. These fees are normally paid to advisers or brokers who introduce clients.

Unsurprisingly, brokers are sceptical about the merits of Mortgagebundles.

"There is no such thing as the best mortgage deal, just the most suitable mortgage deal - and I can't see how borrowers would find that using this site," says Paul Hearnden of My Mortgage Direct. "I'm particularly worried about the process of deciding which deal should win the auction. Does the deal go to the mortgage with the best rate or the lowest fees, and are redemption penalties taken into account?" Consumers are also likely to believe they have picked up something special, he warns.

Broker London & Country is offering a £25 Marks & Spencer voucher to any of its clients who find a better deal through Mortgagebundles than they have been recommended by L&C.

Louise Cuming, head of mortgages at the price-comparison website moneysupermarket.com, is keeping an open mind. "We tried a similar scheme in the past," she says. "It didn't work as lenders weren't ready for it. But perhaps they are now."

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