Property: Good lender? YES or NO

Direct Line's misguided TV advertisements have raised crucial questions for mortgage seekers, write Marie Dyne and Nic Cicutti

It was meant to be the mortgage advertisement of the year. Direct Line, the telephone-based financial services company, challenged other lenders to answer whether they could match it in a number of areas that consumers had deemed to be crucial.

If they could, the company promised to pay for them to appear on TV. Clearly, Direct Line had not expected any takers. By the end of this week, the campaign began to unravel.

Within 24 hours, Direct Line fond itself paying upwards of pounds 250,000 for First Direct, a rival owned by Midland Bank, to appear in its ads - because it, too, had all the right policies. The following day, it was forced to pay for Scottish Widows, the insurer and now a mortgage lender, to grace its TV advertisements.

The company also found itself engulfed by a set of rival claims from lenders as to which issues they felt were important to their customers. "Go on, ask them the following questions, but don't quote us as having put them forward," was the common refrain.

Aside from the manner in which Direct Line's advertising campaign backfired this week, there are important issues for borrowers to consider.

What was Direct Line asking? The company wanted a straightforward YES or NO answer from other lenders to four questions.

l Can your mortgages be paid off without any penalties?

l Will you give an immediate answer as to how much you are willing to lend?

l Can your borrowers get your best mortgage rate without having to buy any of your other products?

l Is your lowest mortgage rate available to all your borrowers?

These were issues identified by its borrowers as being the most important, in research carried out on behalf of the company. Direct Line, clearly, could answer YES to all of them. But the problem, according to other lenders, is that that's not all borrowers want to know.

Direct Line claimed: "First-time buyers feel vulnerable, particularly when dealing with mortgage providers. They are uncertain about which questions to ask and how to ask them. The terminology baffles them, and they are afraid of revealing their lack of knowledge."

Fair enough, replied most other lenders. But they claimed that the best way of solving this problem is to sit down opposite an expert who can guide them through the maze. So, Cheltenham & Gloucester, and Coventry and Yorkshire building societies asked: "Can Direct Line offer face-to- face discussions with their clients and, in particular, first-time buyers?" They can, but because Direct Line is a telephone lender, it can't.

Again, first-time buyers often find they need as big an advance as possible when buying their homes. Most lenders offer loans worth up to 95 per cent of a property's value. Does Direct Line? Once more, the answer is NO; it stops at 90 per cent, leaving some borrowers struggling to find the rest.

One question provoking hilarity from many lenders was the one concerning the availability of their lower rate loans to all borrowers. Given that Royal Bank of Scotland owns Direct Line, are all RBS borrowers, who pay 7.6 per cent for a variable rate loan, offered a Direct Line mortgage at 6.69 per cent?

The answer is NO. "If they are so good, why doesn't RBS just push Direct Line loans instead of its own, or advise customers about its subsidiary's mortgage rates?" was the cheeky question asked by Bradford & Bingley and Coventry building societies. The answer is that if they did, RBS wouldn't be able to lend a bean.

Moreover, as the Bradford & Bingley, C&G, Coventry and Skipton all pointed out, the issue of whether the best rate is available to all borrowers is irrelevant if you are offering only one type of loan, as Direct Line is. "Why don't they offer a wide range of products to allow customers to have a mortgage that meets their personal circumstances?" asked the Coventry.

Skipton, which grabbed the headlines two years ago with its offer of free unemployment insurance to new borrowers, asks whether Direct Line also offers it. The answer is, again, NO.

Bradford & Bingley also sneaked in a quick jab by asking why it was that Direct Line raised its mortgage rates by 0.38 per cent in the latest round of increases to follow the Bank of England's base rate hike. Meanwhile, its savings rates were adjusted upwards by a more modest 0.25 per cent.

The society added that its direct mortgage, also available over the telephone, charges no redemption penalties, and, at 6.6 per cent, is cheaper than Direct Line's. This, however, ignores the fact that Direct Line calculates capital repayments on a daily basis, unlike Bradford & Bingley, making its mortgages cheaper in the long run. One up for Direct Line, at least in this instance.

First Direct, the company which Direct Line was forced to allow into its advertising campaign this week, was restricted to answering YES to its rival's questions on TV. Its marketing people are pleased to have free, prime television time, albeit they are restricted to a guest role.

However, First Direct, too, has some questions for Direct Line: "Can customers arrange a mortgage on Sunday, and are you open for business on Christmas Day?" The answer here, hardly surprisingly, is NO on both counts.

Direct Line claims that the purpose of its advertising campaign is to highlight areas that customers have identified as important to them. Unlike most of its rivals, it can deliver what borrowers want, it says.

The real issue to emerge after this week's botched campaign is that no single lender has a monopoly on how to meet borrowers' needs. Direct Line is an extremely good lender for many people, and its success in the past two years indicates that it meets the needs of substantial numbers. But other lenders also have strong points in their favour.

Ultimately, consumers will decide what suits them best, no matter what the cheeky ads say.