Halifax move signals home loans tightening: Biggest building society drops discounted rate mortgages

THE HALIFAX, the UK's biggest building society, is to stop offering discounted rate mortgages in a move likely to herald a significant tightening in the mortgage market. For the majority of new borrowers, the change will mean more expensive loans.

The Halifax's move may be followed by other lenders, which could lead to higher priced loans accross the board. About 70 per cent of Halifax's new borrowers take out discounted loans, with the other 30 per cent taking out fixed-rate loans.

Instead new borrowers are to be offered cash incentives of up to pounds 6,000 for signing up with the Halifax. Although the building society's marketing department was trying to present the new package in the best possible light, they conceded that for most new borrowers it was not as attractive.

Mortgage brokers expressed astonishment that Halifax was withdrawing such a successful scheme.

Philip Jenks, controller of mortgage lending, said the society was satisfied with the share of the new mortgage market it had achieved with the three discounted rates it offered.

On a pounds 50,000 loan, borrowers could previously have benefited from a maximum discount of pounds 2,400, while the maximum cash they can get under the new scheme is pounds 1,875.

In order to benefit for the entire pounds 6,000 cash back, a new borrower would have to take out a mortgage of pounds 160,000.

From the beginning of July, all new borrowers will either be offered the cash-back scheme or a fixed rate.

The amount of cash the borrower gets depends on the amount of money borrowed and the proportion of the loan to the value of the house.

The incentive ranges from 3.75 per cent on a 60 per cent loan to value to 2 per cent on a 95 per cent loan to value.

Other societies that offer cash- back incentives include the Cheltenham & Gloucester and National & Provincial.

N&P said the Halifax's move could lead to other lenders examining the discounts and cash-backs they offered their customers.

Figures released yesterday by the British Bankers' Association showed that gross lending in May was pounds 1,557m, a 10 per cent increase on April's figure of pounds 1,433m. This year's May figure was only slightly higher than last year's May figure of pounds 1,556m.

Mortgage approvals also rose in May from the previous month's figure of 26,989 to 30,000 - a rise of 12 per cent.

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