Alliance & Leicester to cash in on buy-to-let mortgages

Alliance & Leicester is moving into buy-to-let mortgages - a sector it has previously shunned as too risky - to cash in on new pension rules coming in early next year.

At the same time, Britain's eighth-biggest bank warned that it expected house prices would either be flat or suffer small falls this year.

A&L has long been one of the most cautious mortgage lenders, and has set out its stall as a "low-risk" bank, but denied its decision to start offering mortgages to investor landlords next year amounted to a U-turn in strategy.

Richard Pym, the chief executive, said it would be concentrating on the high net worth individuals who were likely to make use of new rules that come into force in April allowing pension investors to enjoy 40% tax relief when they invest in property through a "self-invested personal pension" (Sipp).

Some experts have predicted the new rules will trigger a renewed rush into buy-to-let, which has been cooling down recently.

A&L said it would enter the market "in a prudent and responsible manner," targeting those with sizeable deposits. While the buy-to-let boom has seen an army of amateur landlords borrowing money to buy properties, Mr Pym said it was "pretty questionable" whether less well-off people should be doing this as their first investment.

Announcing its results for the six months to June 30, A&L said its core operating profit had edged up slightly to £263m from £262m in the same period last year.

It said full-year costs would be lower than in 2004, and this was being helped by customers' increasing use of the internet and phone services rather than branches, cutting manual transaction costs.

More than a third of its new business now comes via the internet, and Mr Pym said the plan was to turn A&L into Britain's leading "direct bank".

The number of transactions being carried out in branches is continuing to fall, but Mr Pym said its 254 high street outlets were still "very important to us", and it did not have any plans to close more branches following last year's closure programme.

Mr Pym said A&L was not anticipating a dramatic worsening in the property market's fortunes. "We are certainly not expecting any great falls in the UK housing market," he added. On mortgages, the bank had made a good start to the year.

The shares closed up 2.5p at 886.5p.