Co-op mortgages boom proves costly

A SURGE in mortgage selling with special offers successfully targeted at first-time buyers and people remortgaging saw Co-operative Bank's first fall in profits for a decade in its first half.

But the bank's loss is its parent Co-operative Financial Services gain as its salesmen and women earned it far more commission selling the bank's mortgages.

Loans and advances to customers soared from £5.2bn to £7.4bn in the six months to 24 July with the bank offering attractive two-year fixed loans and significant early discounts.

The cost of these and commissions are all taken up front, hitting pre-tax profits which fell by 7% to £70.1m. The Co-op only returned to the mortgage market in 2001, having shunned it in favour of credit cards during the 1990s.

Using new IT systems it has become a highly competitive player in the mortgage market but today emphasised that it remains very cautious in the type and size of mortgage it was prepared to offer.

Costs also rose to comply with extra regulation and to top up the staff pension fund. A bigger network of cash machines helped to increase operating income.

Bad debt charges dropped by £2.8m to £31.2m and the bank's capital ratios remain very strong.