The Mandelson Affair: Mortgage Mystery - Crucial questions remain over loan

CRUCIAL QUESTIONS remain over whether Peter Mandelson correctly declared the pounds 373,000 loan from Geoffrey Robinson when he applied for a mortgage for his Notting Hill home.

Mortgage experts also suggested yesterday that a loan without regular interest repayments, as Mr Robinson had agreed with the former trade secretary, would normally be considered a "gift".

Under the normal procedures of the Britannia Building Society, which granted the mortgage, Mr Mandelson was required to sign a declaration stating he had not arranged any other loan, second mortgage or improvement grant in connection with the property in Northumberland Place.

He was also required to certify that all the details he had given on Britannia's mortgage application form were correct. Mr Mandelson has said he could not recall whether he declared the loan when he applied to borrow pounds 150,000 in late 1996. Britannia Building Society said it was legally barred from answering questions on his application because of the Data Protection Act.

Mortgage lenders usually insist on being told of any outstanding loans held by a borrower, to let them assess the risk that the mortgage applicant will become unable to keep up repayments.

A spokesman for Britannia said: "Anyone who applies for a loan with Britannia is required to give us details of all their financial commitments. We always need to establish whether or not a customer is fully able to repay."

When a mortgage represents only a small fraction of a property's value, lenders also expect to be informed of how the borrower is funding the rest of the purchase. While gifts from relatives areaccepted, commercial loans are frowned upon.

Building societies will occasionally waive some of their normal lending criteria to VIPs, but will still carry out certain vital checks.

Failure to disclose a substantial second loan, secured against the same property, would trigger immediate concern, because it would prevent the lender forcing a sale should the borrower default.

In his letter to Elizabeth Filkin, the new parliamentary commissioner for standards, Mr Mandelson claimed his loan from Mr Robinson was not a gift, in spite of Mr Robinson's agreement not to demand regular interest payments.

Mr Mandelson said the agreement was that part of the loan would be repaid by the sale of his former property. The remainder was to be repaid upon the sale of the house in Northumberland Place.

According to mortgage experts, loans would normally be considered a "gift" if the lender had waived the right to regular repayments, as Mr Robinson had. Under Mr Mandelson's arrangement, interest owed to Mr Robinson, at the Midland Bank base rate of 6.25 per cent, would not be repaid but added to the value of the loan. By now, the loan amount has risen to more than pounds 420,000. By 2006 Mr Mandelson would owe Mr Robinson pounds 683,908.

Mr Mandelson said Mr Robinson would also be at liberty to register a charge over the property, giving him the right to force a sale if the former minister defaulted.

A search of the Land Registry for the property in Northumberland Place confirms Mr Robinson has not exercised his right to register a charge on the property.

The only charge is for the mortgage from the Britannia Building Society, placed on the property in November 1996.