MORTGAGE lenders are continuing to calculate interest on home loans on an annual basis according to new analysis.

Up to one in five lenders are failing to look at borrower’s balances on a daily basis adding as much as £150 a year on a £150,000 mortgage according to comparison firm Mform.

Lenders who still use annual calculations instead of the more modern daily interest include Giraffe Money, Bristol & West, Leeds Building Society and West Bromwich Building Society. The research found 18 out of 90 lenders use annual interest calculations.

On a typical £150,000 loan a borrower on the standard variable rate of 7.34 per cent would pay £12.77 extra a month on annual calculations.

The monthly payments are higher because lenders calculate repayments at the start of the year based on the amount outstanding at that point instead of adjusting it during the year as borrowers pay off the loan.

Most lenders calculating on an annual basis do so in December, so any overpayments made in January will have no impact on interest charges for at least 11 months.

Francis Ghiloni, mform.co.uk’s Marketing and Business Development Director, said: “Lenders say they cannot move to daily calculations of interest because of systems issues but it’s borrowers who have to pay.

“However 80 per cent of lenders have managed to move to daily calculations and not all the lenders who still use annual calculations are small regional building societies who need to keep costs down.

“Many borrowers will be unaware of the effect of calculating interest annually instead of daily but it all adds to the true cost of a mortgage and is something they should be aware of.”

Borrowers who are on annual calculations and who want to overpay on their loan should ask their lender when the calculation is made and time their overpayment to coincide, mform.co.uk advises.

Other lenders who use annual calculations include Barnsley, Bank of Ireland, Bath, Buckinghamshire, Catholic, Chorley & District, Dunfermline, Earl Shilton Building Society, National Counties, Holmesdale, Nottingham, Progressive, Vernon and Chesham.