The Mandelson loan: Mystery of the pounds 475,000 townhouse

IT HAD long been a mystery. How did Peter Mandelson afford a pounds 475,000 house on a backbench salary of pounds 43,000?

And, once he had, how did his budget stretch to Ozwald Boateng suits at pounds 1,800 a throw? Where did he get the money for his lavish lifestyle and for expensive stays in Venetian hotels? Well, now we know.

Thanks to the pounds 373,000 he borrowed from Geoffrey Robinson - at preferential rates of interest - his salary went much further. And, once his salary rose to pounds 90,267 a year as Secretary of State for Trade and Industry, it went further still.

At the time he borrowed the money from Mr Robinson, Mr Mandelson could have expected a building society to advance him no more than about pounds 130,000 - three times his salary - or, more unusually, pounds 172,000 - four times his salary. Instead, he got pounds 373,000 from Mr Robinson at the Midland Bank base rate of interest.

If he had borrowed the same amount from the Halifax, the monthly repayments at the end of 1996 would have been about pounds 2,172, compared with pounds 1,865 on base rate - or a monthly saving of pounds 307.

At current rates of interest, and taking into account a pounds 40,000 repayment Mr Mandelson made to Mr Robinson in the spring of 1997, the difference between Halifax-rated repayments and base-rate repayments would have risen to pounds 541 a month - or enough for an Ozwald Boateng suit every three months.

The total saving over 25 months may have been not far off pounds 10,000.

Nevertheless, the repayments will still have stretched Mr Mandelson, as he had to take out a mortgage for a further pounds 150,000 to buy the property and to refurbish it.

At the time, his take-home salary would have been in the region of pounds 2,500 a month - an amount which would have been swallowed up by both sets of repayments.

His mother, Mary, is believed to have helped him, but she is not thought to be particularly wealthy. Mr Mandelson's father, George, left her the family home in Hampstead Garden Suburb and other assets valued at pounds 57,711 when he died in 1988.

The trade secretary's grandfather, Herbert Morrison, a former home and foreign secretary, left pounds 28,000 when he died in 1965. That would be worth pounds 300,000 today, but it all went to his second wife, leaving his first wife, Mr Mandelson's grandmother, with nothing.

Mr Mandelson, who also owns a pounds 70,000 house in his Hartlepool constituency, is likely to have made some money from the sale of his previous home, a flat in Wilmington Square in upwardly mobile Clerkenwell - the sort of property that now sells for up to pounds 125,000. But this is not enough to make a dent in the cost of his four-storey Notting Hill house.

With a basic salary of pounds 35,000, MPs can raise a mortgage of up to about pounds 126,000 - which is just enough to buy a studio flat in Notting Hill. For a house of Mr Mandelson's size, such a sum would mean he would have had to buy in a more downmarket areas of London, like Lambeth.

Margaret Beckett, the minister's predecessor at the Department of Trade and Industry, has retained a "grace-and-favour" flat in Whitehall since she became the Leader of the House.

No such official residence exists for Mr Mandelson.

Like all ministers with constituencies outside of London, Mr Mandelson is eligible for a pounds 12,717 grant towards the upkeep of his Hartlepool home. The Additional Cost Allowance grant is paid to all MPs who claim it, but unlike backbenchers, ministers cannot use the money on a home in London.

Diane Abbott, Labour MP for Hackney North and Stoke Newington, said that she was "baffled" by the size of the Robinson loan to the minister.

"I would hate the public to think that all MPs insist on having half- a-million-pound houses. MPs from outside London get this allowance and they are perfectly able to purchase somewhere reasonable," Ms Abbott said.

"Peter must know the issue here is not just whether any impropriety occurred but whether there is the appearance of impropriety," she said.

"He argues he did not reveal this sizeable loan to his officials and he didn't declare it in the register of MPs' interests because he did not see that there was a conflict of interest.

"But Peter must know that that is not the point - the point is that we strive for the utmost transparency."