mform.co.uk warned that using an annual interest calculation would result in higher repayments for customers as the lender would calculate repayments at the start of the year based on the loan amount outstanding rather than adjusting it during the year.
Mform.co.uk said the annual interest on a £150,000 loan could cost up to £150 extra per year than daily interest calculations.
The study showed that 18 out of 90 lenders used annual interest calculations, including Bristol & West, Leeds Building Society, and West Bromwich Building Society.
Francis Ghiloni, marketing and business development director at mform.co.uk, said: “Lenders say they cannot move to daily calculations of interest because of systems issues but it’s borrowers who have to pay.
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.”
However, Ashley Clark, director at Need An Adviser.com, said: “If clients do not review their financial contracts on a yearly basis, it’s their own fault. I don’t blame providers.
"If someone signed up for the contract, they signed it. People lose money by not having regular financial reviews and those that do will not be caught out.
"Products are not just about daily interest – it’s about how the lender secures its funding, the fees charged, etc. Daily interest is good, but lenders are in the market to make money.”
