Why Building Societies Beat Banks

This survey proves that, as far as homeowners and homebuyers are concerned, building societies are a better bet than banks!

Don't tell anyone at The Motley Fool, but my personal politics are a little left of centre, which explains why I have a soft spot for mutual societies.

Mutual societies ('mutuals') are organisations which are owned by, and run for the benefit of, their members. In theory, mutuals should provide better deals to their members, because they don't have to pay dividends to shareholders. Hence, the customers of building societies should enjoy better deals than bank customers do, in the form of higher interest rates on savings and lower borrowing rates.

In order to put this theory to the test, I asked independent financial researcher Moneyfacts to compare the mortgage rates of the UK's twenty biggest lenders. Together, these lenders account for around nine-tenths of all UK mortgage debt, making this a good representative sample.

In order to create a level playing field, I compared each lender's standard variable rate (SVR), which is the interest rate paid by mortgage borrowers who don't have a special-rate deal, such as a fixed- or discounted-rate mortgage. Here's what my research revealed (lenders ranked by SVR):

Building societies (7)

*Lender*	*SVR (%)*
Nationwide BS	5.89
Standard Life Bank*	5.95
Britannia BS	6.10
Yorkshire BS	6.40
Chelsea BS	6.49
Portman BS	6.50
Coventry BS	6.59
Average	6.27

* 6.15% for loans with a deposit
of under 5%. Note that Standard
Life will become a public listed
company when it floats on the
stock market in two weeks' time.

As you can see, there are seven building societies among the UK's top twenty mortgage lenders, with SVRs ranging from 5.89% at Nationwide BS to 6.59% at Coventry BS, and an average SVR of 6.27%. Now let's check out the banks:

Banks (13)

*Lender*	*SVR (%)*
HSBC	5.75
GMAC - RFC	6.49
Halifax/Bank of Scotland	6.50
Abbey	6.50
Lloyds TSB/ Cheltenham & Gloucester	6.50
Barclays/Woolwich	6.59
Royal Bank of Scotland/ NatWest	6.59
Northern Rock	6.59
Alliance & Leicester	6.59
Bristol & West	6.59
National Australia Bank (UK) (Clydesdale & Yorkshire Banks)	6.59
GE Money Home Lending (First National)	6.84
Average	6.51

Thus, the thirteen banks in our survey charge SVRs ranging from 5.75% at HSBC (the gold medallist in this survey) and 6.84% at GE Money. Note that the average SVR for these banks comes to 6.51%, which is higher than the SVRs charged by all of the above building societies, bar Coventry BS.

So, the evidence is clear, building societies really do beat banks when it comes to SVRs (with the notable exception of HSBC), as my final summary demonstrates:

	*Banks*	Building Societies
Lowest SVR (%)	5.75	5.89
Average SVR (%)	6.51	6.27
Highest SVR (%)	6.84	6.59

Finally, most of the UK's 11.6 million mortgage borrowers don't pay their lender's SVR, as they have some kind of special-rate deal which costs far less. If you'd like to slash your mortgage repayments, visit the Fool's Mortgage centre, where you'll find some great rates, plus an award-winning, no-fee mortgage broker which searches the entire market on your behalf.

More: Use the Fool to compare mortgages, compare personal loans and compare credit cards!

Disclosure: Cliff owns shares in Lloyds TSB and HBOS, parent company of Halifax and Bank of Scotland.