Alliance & Leicester to offer buy-to-let mortgages

Alliance & Leicester said today it would start to sell specialist mortgages for the growing buy-to-let market.

Recent research showed that the number of buy-to-let loans grew by 40% in the second half of last year compared with the first half as landlords kept pace with rising demand for rental property from tenants.

The former building society, which is now Britain's seventh largest bank, said it continued to focus on the residential mortgage market with net lending in the first quarter of this year reaching £1.4bn, equivalent to a market share of 6.3%.

But the recent slowdown in consumer spending hit Alliance & Leicester's unsecured personal lending business. Lending fell to £565m in the first quarter, down 37% from £890m for the same period last year.

The bank said the difference between the interest it charges to borrowers and the rates it awards its savers, known as the net interest margin, continued to decline as it sold more lower margin financial products.

Costs in the first half of this year were expected to be at around the same level as last year as productivity gains continued to be made. Banks are seeing their customer service costs fall as customers choose to bank increasingly by phone and over the internet.

Alliance & Leicester's shares have risen by 17% this year, as the company has been the focus of endless bid speculation, reaching a record high of £12.77 last month.

The French bank Credit Agricole has said it is considering a takeover bid for the British bank and Spain's Santander is also thought to be considering making a bid.