Halifax stokes mortgage war

The Halifax bank has announced that it will launch new competitive mortgages, a move that according to analysts will intensify a price war among UK lenders.

The mortgage product, to be launched in March, will be priced at one percentage point above the Bank of England's base rate. Its rate would therefore stand at 6.75% if UK rates stay unchanged.

The battle is now on for the hearts and minds of the consumer... it's a battle the Halifax is determined to win

James Crosby, Halifax chief executive

The Halifax, which is the UK's biggest mortgage lender, currently charges its borrowers 7.5%.

The first shot in the High Street brawl was fired by the Nationwide building society on Monday, when it announced that it would drop its standard variable rate from 7.09% to 6.49%.

The stockmarkets, however, did not like the news, as the rate war could cost the Halifax millions of pounds in profit.

The bank's shares were the fourth biggest losers on the market on Tuesday, falling more than 3% or 27p to close at 681p.

Housing market boost

For a £60,000 mortgage with the Nationwide, repayments would be cut by about £30 a month.

BEST MORTGAGE DEALS

Fixed rates, ext. tie-in

Northern Rock - 3.65% (till 1 May 2003)

Norwich & P'Boro BS - 3.68% (2 years)

West Bromwich BS - 3.75% (till 28 Feb 2003)

Fixed rates - no ext. tie-in

Britannia BS - 4.94% (2 years)

West Bromwich BS - 4.95% (till 28 Feb 2003)

Leeds & Holbeck BS - 4.95% (till 1 April 2003)

Variable rates

Scarborough Direct - 6.35%

Hinckley & Rugby BS - 6.39%

Coventry BS - 6.44%

various conditions apply
source: Moneyfacts

Other banks are likely to follow the example of the Nationwide and the Halifax, rather than face the danger of business draining away to other lenders.

The cut in mortgage rates is expected to provide a fresh boost to the UK housing market, already picking up in January according to figures from the British Bankers' Association, which showed home loan lending in January up by £2.1bn, well above the average rise in recent months.

The Halifax announced the drive to drum up its mortgage business as it reported its financial results to the London Stock Exchange.

The group boasted an increase in pre-tax profits of 7% to £1.715bn ($2.48bn) for 2000.

This was at the upper end of market expectations.

The firm also managed to grab 10.3% of the market for new mortgages, its largest share since it converted from being a mutual society to a profit-oriented bank.

Hearts and minds

In the overall market, though, the Halifax continues to hold about 19% of all mortgages, a leftover from its days as a building society, when it could offer more competitive mortgage rates.

The bank hopes that it can come out on top in the mortgage wars once it begins selling the new deals in March.

However, the new rate tracking the Bank of England's base rate will be guaranteed only until the end of this year.

Halifax chief executive James Crosby said: "The battle is now on for the hearts and minds of the consumer. It's a battle the Halifax is determined to win."

One way to do that are higher interest rates on current accounts, and since the bank launched an account offering 4% interest, applications have trippled.

Online doing well

Halifax also said that its new online division, Intelligent Finance, was on track and reporting strong customer growth.

By the end of the year, the phone and online banking operation had received 80,000 account applications, with even stronger growth reported during the first weeks of this year.