Personal finance: Could Halifax sell you a tomato?

Mike Blackburn, the chief executive of Halifax, was asked last week if he was worried that customers would slip away from the society now they had lost the prospect of "free" windfall shares.

The question was a fair one. Since converting to a bank, Halifax has seen its share of the mortgage market (measured as net lending) shrink to just 6 per cent. It is normally around 16 per cent. Its mortgage rates are expensive compared to mutual societies - many of which have reported record business even as Halifax reported record lows.

Mr Blackburn's reply went something like this: "Tomatoes are cheaper in a Halifax market than they are in Marks & Spencer. But people still go to Marks & Spencer."

His chum on the board, Nigel Colne, who recently retired as a director of M&S, must have been pleased. But what does this say about Halifax's attitude to its customers?

Mr Blackburn appears to have meant that people would go to the Halifax for a mortgage because its products were high quality. Cheap rates, he appears to think, don't matter so much.

Really, Mr Blackburn. Is that the way it works? Just how high can you raise the price of a tomato before the customer balks and goes down town?

Mr Blackburn's tomatoes - sorry, mortgages - are pretty dear. A variable rate mortgage with Halifax now costs 8.7 per cent a year. At its mutual rival, Nationwide, it is 8.1 per cent. Because of that gap, a customer with a pounds 50,000 mortgage would pay roughly pounds 3,000 extra over 10 years.

Meanwhile, Halifax savings accounts are hardly a cheap bunch of bananas. While some new banks are offering instant access accounts at 6.7 per cent, Halifax hardly goes near this - even when you tie your money up.

Compared to its mutual peers, Halifax is taking unreasonable profits from its customers. Both building societies and banks take a substantial chunk of their profits from the gap between savings and loan rates - the "net interest margin". Halifax's gap on retail operations is 2.48 per cent. At Coventry, the mutual, it's less than half that, 1.20 per cent.

So far, some 4 million shareholders have kept their Halifax shares. Many got a windfall worth over pounds 1,500 each. With the prospect of pounds 1bn to be spent on a share buy-back (see page 1), they can rely on getting "a little extra help". Customers, on the other hand, have ended up with squashed tomatoes.

Ethical investments are booming, according to a recent report. Co-Operative Insurance says some pounds 1,250m was invested in 21 ethical unit trusts as of last month, up more than pounds 50m in just a month. The myth is that they don't give as good returns as the less scrupulous kind - but this is City propaganda. Unfortunately, there is nothing to stop them investing in the Halifax.

The Independent's free Guide to Ethical Finances, written by Nic Cicutti and sponsored by Friends Provident, can be obtained by calling 0800 21 44 87. Or fill in the coupon on page 4.