A&L frees borrowers from interest rate lock-in

Alliance & Leicester is to market simpler, flexible mortgages which might counter criticism that lenders are cheating homebuyers.

While the bank insists the move is not a reaction to the government inquiry into the mortgage market announced this week, the products are expected to address concerns about mortgage lock-ins.

One of the new products is expected to track the Bank of England's official rates once the discounted period of the mortgage has ended. Lenders have been criticised for failing to pass on official rate cuts.

Announcing a 7% rise in pre-tax profits to £247m in the first six months, Peter White, A&L chief executive, insisted he had received "no phone calls whatsoever from anybody" about a takeover since the bank's merger talks with Bank of Ireland broke down acrimoniously last month. BoI had tried to renegotiate the terms of the deal, Mr White said.

He would pursue other mergers which offered the opportunity to increase profits, provide more customers and cut costs or "perhaps all three".

The bank is protected from hostile takeovers for another year under the terms of its conversion from a building society.

The figures, which showed A&L makes 47% of its profits outside its core mortgage and investment business, beat the City's expectations. Analysts started to upgraded full-year forecasts and the shares rose 12p to 834.5p, against a sharply lower market. It will pay a 9.5p interim dividend.

Mr White said the bank would continue cutting costs and was rationalising its mortgage and card processing. At the start of the year, the bank had introduced incentives for its 2,500 branch staff, setting stringent sales targets which earn bonuses but potentially cost them their jobs if they failed to meet them.

Names of the best and worst three branches are published internally.