Abbey National cuts lending rate

Abbey National, the country's second largest mortgage lender, yesterday cut its lending rate in an attempt to stem the exodus of customers from the bank to cheaper rivals.

The move, which comes amid uncertainty about the bank's future after recent bids from the Bank of Ireland and National Australia Bank, will cut its standard variable rate (SVR) of 6.1% by 0.16% to 5.94%, bringing it closer in line with competitors.

The cut will benefit around half a million borrowers and come into effect from November 1, although new customers will qualify from next Monday. The new rate means borrowers with a £100,000 mortgage stand to save £9.79 a month, reducing their payments to £650.43.

Abbey has been criticised for its high variable rate - the worst of the big high street lenders. Its new rate is marginally better than NatWest, Barclays and Cheltenham and Gloucester, all of which offer 5.95%. It is still higher than Halifax which charges 5.75%, and Nationwide which has a basic rate of 4.74%.

A spokeswoman for the financial data provider, Moneyfacts, said that the cut was likely to be in part a response to recent rulings by the financial ombudsman against Abbey's "dual rate" system whereby it offered a lower SVR to new borrowers while existing customers were left on higher rates.

She also said the cut would do little to attract new borrowers who were more likely to sign up to cheaper fixed, discounted or capped mortgages.

An Abbey spokesman said the bank had been disappointed by its first half results which showed that its share of the mortgage market had shrunk to 7%, rising to nearly 12% during the second half.

Concerns about the scale of possible job losses if a merger went ahead were raised again yesterday.

The finance union, UNIFI, said that thousands of staff could go.

"Speculation mania is driven by shareholder value and advisers' bonus potential. The possibility of a merger has sent analysts into a frenzy but the reality is that staff are going to lose their jobs," a spokesman said.