Halifax claims mortgage victory

Halifax grabbed a huge share of new mortgage and current account business in the first six months of the year, but to the detriment of its profits, it revealed yesterday.

The self-proclaimed consumer champion sold 25% of all new mortgages and claimed to have pulled in half the current accounts switched by disgruntled customers of rivals.

But the bank spent £100m on these market-beating products to lure customers, which contributed to a fall in its six-month pretax profits to £839m.

As he revealed the last figures before the merger with Bank of Scotland, James Crosby, Halifax's chief executive, declared that "inertia" in the market was over and Halifax "had taken the mortgage market apart". The merger cost £21m.

The bank's shares rose 6% to 813p as it assured the City that the compression in its profit margins caused by the new range of products would not continue indefinitely.

In the mortgage market, where only three years ago Halifax was losing business, Mr Crosby said the pain had been felt by Nationwide and Abbey National. The bank's 25% share of new mortgages, including the sales of Intelligent Finance, was its largest since the 1980s.

Its controversial strategy to pay 4% interest on current accounts, advertised by Howard the singing bank manager, pulled in 260,000 customers, most of whom had completed the notoriously cumbersome transfer process. This appeared to give Halifax almost 50% of the total number of accounts - 590,000 - switched across the industry in the six months to the end of June. The rate is to fall to 3.25% in September.

Mr Crosby said most of the accounts came from the "big four" - Lloyds TSB, Royal Bank of Scotland/NatWest, Barclays and HSBC - which tend to pay 0.1% on current account balances. Halifax's market share rose from 5% to 8%.

After Halifax and Bank of Scotland complete their merger next month, BoS's customers are also expected to be offered higher interest on current accounts.

Halifax admitted that the costs of setting up the internet-cum-telephone bank Intelligent Finance had risen by £40m to £140m as a result of delays and expansion of the technology. Sales of insurance products, predominantly through Clerical Medical, rose 60%, giving a 31% rise in profits, which helped cushion the blow.

Halifax's 3.1m private shareholders will not have confirmation of the dividend until the merger with Bank of Scotland, to form HBOS, is complete but can expect 9.3p, a rise of 9%. The biggest uncertainly about HBOS is expected to be the quality of BoS's assets.

The banking industry faces an annual bill of at least £30m to comply with government demands to offer basic services to customers without bank accounts. The cost is predicted to rise as demand increases.

According to a report published by the British Bankers' Association yesterday, some 3.3m of these accounts are now provided to customers, who are not allowed to go overdrawn.

The research by the BBA concludes that each of these accounts costs £10 a year for the bank to run although it notes that "an annual loss of £10 per account may well be a considerable underestimate".

The banks were instructed to make these accounts available by last October, around the same time that they were asked to contribute to the cost of running universal banking services in the Post Office, also providing banking to the less well off.