State-owned lenders 'in loan rates rip-off'

Bailed-out banks offering uncompetitive interest rates to new mortgage customers
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The Independent Online

State-owned banks were accused yesterday of ripping off borrowers by charging over the odds on mortgages. Analysts said the majority of lenders rescued by the Government in the banking bailout charged more than average for home loans. Only Royal Bank of Scotland bucked the trend.

"Some state-funded banks appear to place a higher priority on getting out of Government ownership, rather than helping with competitive rates the customers who supported them," said Michelle Slade, of the financial website Moneyfacts.

"The large amount of money pumped into some well-known banks is still a sticky point with many taxpayers. Many hoped that the state-owned banks would be at the front of the queue for unlocking the mortgage market, but this isn't the case."

Moneyfacts analysts compared interest rates offered by the biggest mortgage lenders with the market average, basing their research on a two-year, fixed-rate deal for someone able to put down a 25 per cent deposit on a home. They found the Cheltenham & Gloucester was the worst culprit among the state-owned lenders. C&G – part of Lloyds Banking Group which is 41 per cent owned by taxpayers – charges interest of 4.57 per cent compared to the average of 4.19 per cent.

The second state-owned lender in Moneyfacts's list of shame is Northern Rock – 100 per cent owned by the taxpayer – which charges 4.37 per cent. In third place is the Halifax, also part of Lloyds Banking Group which charges an interest rate of 4.27 per cent. Lloyds defended its mortgage lending, saying: "We have one of the deepest and widest ranges of mortgage products available and work incredibly hard to maintain a comprehensive range.

"Our 75 per cent loan-to-value fixed rates start as low as 3.74 per cent and the rate can be further reduced by at least 0.2 per cent if customers also have a Halifax current account and pay in a minimum of £1,000 each month."

However, other analysts said it made sense for state-owned banks to keep new mortgage lending to a minimum. Andrew Hagger, of the website, explained: "Banks were bailed out by the Government on the back of some risky lending practices, so you can see why they are keeping their rates out of the best buy tables.

"From a taxpayer's points of view, it doesn't look like the banks are playing fair, but unfortunately ... it is not that simple. They've got enough on their plates without having to cope with the new business that more competitive rates would bring."

Michael White, of Email Mortgages, agreed, saying: "State-funded banks are caught between a rock and a hard place. Having taken government money to survive, their priority has been improving their balance sheets so they will not require further rescue packages down the line, which does not marry up with the provision of mortgage products at competitive rates."

However, topping the Moneyfacts poll was the 84 per cent state-owned RBS, where the average rate for a two-year fixed deal was 3.84 per cent.

"Given that many state-backed banks are required to lend significant amounts of mortgages, you could expect more of them to be offering relatively competitive deals," said David Black, an analyst at Defaqto.