So would you stake your house on being safe with the Post Office?

As the venerable institution moves into a new market, Esther Shaw asks if this is the best option for safety-conscious Britons
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The Independent Online

After events at Northern Rock, it is no surprise Britons are looking at financial institutions that they perceive as being safe.

At first glance, the Post Office would seem a prime candidate. But before you rush to deposit your life savings or take out a mortgage, it's important to understand exactly how the group's financial deals work.

Since 1969, customers have been able to buy National Savings & Investments (NS&I) products such as premium bonds through branches. But in 2004, the Post Office itself started to offer financial products such as savings accounts, insurance, bonds and credit cards. Andrew Hagger from financial analyst Moneyfacts urges consumers to note the difference between NS&I, which is backed by the Treasury and considered 100 per cent secure, and Post Office products, which are not.

Just last week, the group announced plans to enter the mortgage market. It insists its decision had nothing to do with Northern Rock, but it was certainly a timely announcement and its mortgage products are going on trial in the north of England – Northern Rock's stronghold.

Three types of home loan are being offered in the pilot scheme: a three-year fix at 6.09 per cent; a fixed-rate buy-to-let loan at 6.35 per cent, and a self-certification discount loan at 6.44 per cent.

The Post Office says it is aiming to provide "straightforward mortgages with good initial and long-term value and no hidden charges". Each of the products, it adds, will have a transparent pricing structure, including a low-cost arrangement fee of £399.

While consumers may be drawn to the idea of taking out a mortgage with a well-established name, brokers point out that the new deals are being funded by Bristol & West, the Bank of Ireland's lending arm.

"Having your mortgage with the Post Office is no safer than having it with any other lender. These deals are not backed by the Government so the borrower won't get any extra protection," says James Cotton at broker London & Country.

Further, the rates on offer aren't the best available, says Melanie Bien at broker Savills Private Finance. "The low £399 arrangement fee on all products is welcome and transparent, but this is not much help if rates are high – which they are," she explains. "Britannia building society has a standard three-year fix at 5.69 per cent with a £399 fee, while UCB Home Loans has a five-year buy-to-let fix at 5.99 per cent with a £695 fee."

Another concern is how the new loans are going to be sold. The only way you can actually take out a Post Office mortgage is by speaking to someone at the call centre – but these staff members will not be financial advisers.

"We are confident that with the information we are providing in our branches and on our website, and because we are offering a simple range of products, that people can get an informed view of which product is right for them," says Gary Fitton from the Post Office.

But Ms Bien disagrees: "Consumers need to be so careful when taking out a self-certified mortgage, say. You need someone to talk things through with you and to give you proper advice."

The trial is due to run into next year, after which the Post Office will decide whether to extend the loans.

The group claims to be the fastest-growing financial services provider in the UK, with over a million customers. But views on its deals are mixed. Mr Hagger says its savings accounts aren't "best buys" and Anna Bowes at independent financial adviser AWD Chase de Vere says its one-year fixed-rate growth bond at 5.7 per cent can easily be beaten. "The Post Office is hard to beat in terms of the number of branches," she says. "But its products are nothing special."

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