Halifax goes all out for home loan dominance

The battle for Britain's mortgage customers intensified yesterday as Halifax announced what it claimed was the most competitive range of products on the market and published plans to grab 15% of all new home loans in 2001.

The country's biggest mortgage lender also pledged to win the "hearts and the minds of the consumer" as it confirmed the reduction in its standard variable mortgage rate to 6.75% from 7.5%. The move came a day after Britain's largest building society, Nationwide, cut its rate to 6.49% from 7.09%.

Because only 400,000 of Halifax's 2.5m mortgage customers have standard variable rate loans, a small proportion of its existing customers stand to receive any immediate benefit from the initiative. These customers will have to apply for the new rates, which will be advertised from today.

Despite reporting a 7% rise in pre-tax profits to £1.7bn, the bank's shares fell 28p to 680p, along with some of its rivals amid concerns that competition for mortgages would reduce profits.

Halifax said that it was beating targets to double its share of current accounts, a sector in which it has just a 5% share. Its high-profile advertising campaign featuring Howard Brown, the singing bank cashier, had helped it to sign up 100,000 new current account customers last month alone.

"Even at this stage, customer inertia is on the way out," James Crosby, Halifax's chief executive, said.

The bank is raising its target for new mortgages from last year's 10%. Halifax has had a 19% share of mortgages for some time but lost new business as a result of its customers "remortgaging" to cheaper rates offered by its rivals. Yesterday's reductions are intended to end this practice.

Other lenders, such as Abbey National and Cheltenham & Gloucester, the mortgage arm of Lloyds TSB, showed little sign of following suit yesterday, leaving their rates as much as one percentage point higher. HSBC last year made its pledge to keep loan rates down.

Halifax said the move would hit its profit margins by no more than the 10% that the bank forecast six months ago. It expects that erosion rate to be reduced to 3% in 2002 although this failed to convince some City analysts who were concerned that a fresh out break of competition next year would bring further pressure on Halifax's profits.

Halifax aims to remain independent despite the unwanted advances being faced by its closest competitor, Abbey National, from Lloyds TSB. Mr Crosby warned that takeovers and mergers were not good for customers. "No matter how big the bank or the franchise, if the value isn't there the customer will walk away."

The bank, with 50% of its shares owned by retail investors, will pay a total dividend of 26.5p. It also confirmed plans to give its 36,000 employees share options worth 20% of their salaries, redeemable after three years. Mr Crosby dismissed options to chief executives as "fat, easy cheques".