The government is to stop mortgage lenders from selling home insurance alongside home loans.

The move by the Department of Trade and Industry is another step in the government's drive to create a level playing field in the mortgage market.

It means an end to a system of tie-ins which is estimated to cost homeowners £400 a year in hidden home insurance commissions.

Trade and Industry Secretary Stephen Byers said some mortgages offering a low start-up interest rate come with compulsory buildings and contents insurance.

And he stressed the insurance does not have to be competitively priced because the borrower is unable shop around for a better deal.

Mr Byers added: "We will no longer be in the position where borrowers are paying less for their mortgage, but more than they need to for their insurance."

'Brilliant news'

The government's decision was welcomed by some insurance providers.

Ian Chippendale, group chief executive of Direct Line, the UK's leading direct insurer, said: "This is brilliant news for consumers.

"It is high time that banks and building societies were brought to book over their scandalous practices of making mortgage offers conditional upon the purchase of the lender's home insurance.

"Consumers will, at long last, be free from being forced to pay needlessly expensive premiums which we estimate can cost around £50 or more each year than insurance arranged direct."

Mr Chippendale urged the government to tackle other practices in the home loan market, including failure to calculate mortgage interest daily rather than yearly, excessive redemption penalties and lack of transparency to enable proper comparison of competing products.