Bradford & Bingley triggers mortgage war

NIC CICUTTI

Building societies yesterday began hoisting defences against hostile takeover bids as the Bradford & Bingley cut mortgages rates and raised the return to savers. The Nationwide promised to follow suit within weeks.

Bradford & Bingley, the fifth-largest building society, cut the cost of its home loans to a new low of 7.24 per cent.

The society's bonus to its 1.9 million members, including a pledge of better savings rates, sparked expectations of a fresh mortgage price war with other lenders.

Its move prompted Nationwide, the largest society after Halifax, to say that it too would introduce a "loyalty" package for its 8 million members.

Brian Davis, chief executive at Nationwide, said of his own society's plans: "We will know where we stand by our year-end in April. That will be the time for us to introduce any appropriate changes.

"We have been working carefully, trying to make sure that our capital reserves were sound before making a decision." He added that Nationwide planned to remain competitive as far as mortgage rates were concerned.

John Wriglesworth, director of strategy at Bradford & Bingley, said: "We think that building societies that opt for plc status are making a one-way decision to sell off the family silver. This will leave their customers eating off paper plates in the future. We are giving them silverware, china and the best cuisine for the foreseeable future."

However, Halifax and Abbey National, who have led earlier mortgage-cutting moves, said yesterday they were not planning to follow Bradford & Bingley's example yet.

Bradford & Bingley's give-back, expected to reduce its profits by pounds 50m a year, cuts the cost of an average pounds 50,000 mortgage by about pounds 10 a month.

Over a typical 25-year loan period, an interest-only borrower would save pounds 2,800. Over five years, new and existing borrowers will pay about pounds 550 less. The new rates take effect on 1 March.

Savers will also benefit by the society's pledge to keep rates at an average of 0.25 per cent more than its key competitors.

"This announcement demonstrates the benefits of mutuality in action," Geoffrey Lister, chief executive of the society, said.

Yorkshire Building Society, which offered a similar package to its 1 million members last October, and Britannia, about to launch its own loyalty bonuses, welcomed Bradford & Bingley's move. Its decision follows a series of takeovers and mergers of building societies.

Cheltenham & Gloucester and National & Provincial have been taken over by banks.

Last year, Halifax and Leeds Permanent merged and will de-mutualise in April 1997. Woolwich plans to follow suit shortly after that. An announcement from Alliance & Leicester is imminent.

Mr Wriglesworth said: "In the 1990s, we had better rates than the banks but we also had to face the fact that the housing market had collapsed. We needed to build up our reserves and have been doing so for the last five years. We can now give back some of our profits. We had planned a complicated system based on long-term loyalty bonuses, but some of our members said to us that they might be dead by then."

Rob Thomas, building society analyst at UBS, the Swiss banking group, said: "Having argued for a long time that societies that wanted to stay mutual needed to do something like this, I am not surprised by such a move. I can see this gaining momentum in bits and bobs."