Mortgages, Loans, and Credit Cards - Why You Should Mistrust The Best Buy Tables
April 2006
Thousands of customers flock to the Best Buy tables. But is it all as it seems? Surprise, surprise the industry can cheat! This article explains and advises customers what to do about it.
For providers of mortgages, loans, and credit cards, a top place in the Best Buy” tables is bonanza time. Customers simply can’t push through the door fast enough! So it’s not perhaps surprising that lenders will employ every trick in the book to get to the top.
Best Buy tables are stock in trade for financial journalists and mentions in the national press represent hundreds of thousands of pounds of free advertising for the lenders. But some best buy tables such as Moneyfacts, are only available to finance professionals on subscription so the internet has become a primary source of information for Joe public. Selections of Best Buy tables are available on many of the price comparison web sites.
This Best Buy information is treated like manner from heaven for those of us bent on emulating scrooge! After all if it’s in print or on the net, it must be true – isn’t it? Indeed, top positions can make all the difference between success and failure for a new financial product. So comes as no surprise to learn that inventive finance executives aren’t behind the door when it comes to finding tricks to climb to the top of the tables.
A Mortgage Example
- The Northern Rock Building Society's two year fixed rate mortgage has a table topping position
- But if you take a closer look you’ll find that with this product, the Society only lends on 80% of the property’s value and it has a 1.5% arrangement fee
- This means that this mortgage only makes sense for those wanting a mortgage of over £175,000 and effectively rules out most first time buyers.
A Loan Example
- In the loans market, the Alliance & Leicester’s Moneyback Loan provides another good example
- With an interest rate of just 5.5% on a 3 year £5,000 loan, this product recently hit the top of the Best Buy tables in Moneyfacts
- But behind scenes the marketing boys at Alliance & Leicester had been busy - They’d specifically engineered the product to win top place for a £5,000 loan
- The loan was structured so that unless the customer wanted exactly £5,000, the repayments effectively increased and pushed the product well down in the comparison tables
A Credit Card Example
- Which is the better deal – HSBC’s credit card charging 13.9% or Cahoots at just 11.9%?
- The answer is it depends on how you use your card - Cahoot charges interest right up to the date they receive your payment whereas HSBC charges interest to the date the bill is produced
- The result is that if you regularly paid off your bill in full, HSBC’s card would work out cheaper
Summary
So what can we learn from all this? Never forget that lenders are in the market to make money. You can bet that if on the surface, a mortgage, loan, or credit card looks unusually cheap, there’s going to be a catch. Somewhere there’ll be an angle through which the lender gets its money back. In our view when it comes to personal finance, there’s no such thing as “Best in Market”. What’s "best for you" will depend on your personal circumstances and how you want to use the finance. So by all means look at the “Best Buy” tables but do so with a healthy pinch of scepticism and a keen regard for the small print!
The problem is that most people are insufficiently experienced to assess the small print. Our advice is when considering a significant financial purchase like a mortgage or loan, use a broker. This doesn’t necessarily mean that you’ll have a brokerage fee to pay - many brokers are happy to work off the commission they receive from the lenders, and their experience could save you a packet.
All the top financial brokers have web sites - so our advice is stay online and let your fingers do the searching!
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