Recent years have seen great changes in the availability and affordability of mortgages. Lending criteria have loosened and rates are at their lowest levels historically. Despite these advances, some borrowers allege that their mortgage providers are engaging in practices which needlessly penalise them.

The Office of the Director of Consumer Affairs has received complaints from the public regarding all main lenders in the past year. Judging by letters received by Family Money, criticisms relate to inflated variable rates on mortgages, potentially misleading advertising practices and the charging of arrears and penalties.

The practices complained of are taking place within the parameters of existing legislation but, in some instances, seem unfair to consumers. They are not confined to any single mortgage provider. But in the context of illustrating the nature of the some of the complaints involved, Family Money has examined documentation relating to Irish Nationwide Building Society where some customers with both good and bad repayment practices have indicated their dissatisfaction with aspects of the building society's practices.

However, the society has strongly defended its procedures on the grounds that they are in line with industry norms and are defined in the terms and conditions of the contracts accepted by borrowers.

"Penal" interest rates: In one instance brought to Family Money's attention, customers have reviewed their mortgage and felt they were being overcharged. They asked the society for a rate analysis of their loan and a breakdown of all insurance premiums paid. When the customers pursued the lender regarding the "penal" interest rate they felt they were being charged, the building society offered them a reduction in their rate which was just below their existing rate at the time.

The rate reduction was granted because they were considered good customers but Irish Nationwide made clear it was at its discretion as the reduced rate was outside of general variations in interest rates.

Independent mortgage firm, REA Mortgage Services, says it has reviewed the mortgage repayment details of several Irish Nationwide customers. In the case mentioned above, REA concluded that borrowers involved had been charged over the society's advertised standard variable rate by an average of one percentage point. The premium ranged between 0.55 of a percentage point and 4.35 of a percentage point.

The comparison rate used was the one advertised in national newspapers and in the society's branch offices says Ms Sarah Wellband of REA. Although not indicated in newspaper tables, this is the rate for new customers. The rate charged to existing customers is not advertised and therefore unavailable for comparison. Irish Nationwide told Family Money its quoted variable rate (currently 3.98 per cent) is a new business rate applicable for home loan borrowers with the society. "Rates for existing mortgage customers of the society are applied in accordance with their individual mortgage contracts, the purpose and nature for which the funds were required are indicative of the rate."

Based on the advertised rate, REA estimated the excess charged to the couple over the years was more than £3,000.

Irish Nationwide told the customer that all general interest rate variations had been applied to their account in accordance with the society's rules and notification given at all times - therefore no interest and no refund arose. No explanation or copy of these rules was included but the society offered them either a reduced variable or a fixed rate mortgage.

In a statement issued to Family Money yesterday, Irish Nationwide said: "No customer of the Society is overcharged under the terms and conditions of their loan contract, which they freely enter into and in which they were advised by their own solicitor. (This is similar to all other lending institutions.)"

The building society said "the interest applied by the Society is in accordance with borrowers contracts as is the case with all other lending institutions. If at any time during the term of the mortgage the borrower seeks to review the terms and conditions any review is without prejudice to the Letter of Offer, Mortgage Deed and Memorandum and Rules and to the circumstance of the case. Any alteration to any term and condition is at the absolute discretion of the Society, this would be similar to all other lending institutions."

Unclear Documentation: Irish Nationwide's notices of interest rate variation, seen by Family Money, state the rate change and not the actual variable rate customers would be charged.

For example, a notice from 1997, states the rate increase is 0.50 per cent as from a specific date that year. It also tells the borrowers their new monthly repayment amount. The document does not say the exact variable rate being charged. The rate analysis sent to the borrower also excludes this information.

According to REA, in order for Irish Nationwide customers receiving such documentation to determine their actual rate, they must take their letter of offer rate and add or detract all the rate variations from the beginning of the loan. Over a period of a few years, this may involve numerous changes. Although this practice is not illegal, or even unprecedented, it clearly makes it difficult for the consumer to know what rate they are being charged on a month-to-month basis.

Family Money asked Irish Nationwide how customers are made aware of the rates they are being charged each month, quarter or year. It replied: "The Society complies fully in this regard with the Building Societies Act 1989, the Consumers Act 1995 and the requirements of the Central Bank. Every borrower is entitled to have details of all matters pertaining to their account including the interest rate being charged. This information is easy to ascertain by any individual borrower. As and from the 1st January 2000, the Society will have the technological capacity in its new computer system to automatically advise borrowers of their interest rates and have such information incorporated in all relevant notices issued."

Annual rest calculation: Another contentious issue, according to REA, is Irish Nationwide's practice of charging on an annual rest basis. With an annual calculation, the lender estimates interest expense at the beginning of each year and adds it to the outstanding balance of the mortgage.

As the customer makes mortgage payments the lender deducts this payment from the outstanding mortgage balance but does not take account of these payments in calculating interest. In contrast, monthly calculations take account of the mortgage's decreasing balance.

Annual calculations were common practice among lenders until a few years ago but this has now been replaced by a monthly calculation for new borrowers. Some existing borrowers with lenders that formerly charged on an annual basis may still be subject to this practice.