Egg hatches cheapest variable mortgage rate

EGG, the telephone and Internet banking arm of Prudential, yesterday cut its variable mortgage rate to 5.59 per cent, making the company's deal the cheapest on the market.

The company will also become the first to differentiate between Internet and telephone-based applicants, with the latter being charged a pounds 199 completion fee for the loan.

Egg's rate would yield savings of up to pounds 1,200 a year on a pounds 100,000 repayment loan compared to high-street rivals such as Halifax and Abbey National.

However, despite a drop of 0.2 percentage points on its previous charge, the new variable rate remains within sight of some newer telephone rivals, such as Standard Life Bank, whose rate is now 5.88 per cent, plus a 1.5 per cent discount in the first six months. Legal & General, another insurer, offers a similar rate plus six-month discount.

Trevor Field, head of home finance products at Egg, said: "We are looking to do in the region of pounds 1.5bn net lending this year. In terms of saving time and money, we think the Internet will revolutionise the mortgage marketplace in the UK."

Egg said that although its full Internet home-loan service would only be launched next year, users could still apply online now for the new variable rate. Egg's 25,000 current borrowers, whether telephone-based or Internet customers, will all benefit from the rate cut.

The new rate marks the next stage in Egg's development from a mainly deposit-based institution - its savings account has attracted pounds 5bn since launching in November - to one targeting borrowers. When it launched its instant access account last year it offered 8 per cent gross to savers. That has declined to 5.5 per cent, still one of the most competitive in the market. But a spokeswoman denied that the company's move might be reversed should base rates rise. "It is linked to what happens to base rates, as all mortgages are, but we are very unlikely to raise it if base rates go up next week," she said.

Egg also denied that telephone-based borrowers, who will have to pay pounds 199 for the first time, will effectively subsidise Internet applicants. "The [differential is] a reflection of the fact that e-commerce is a cheaper way to do business."

Woolwich Direct said it was launching two new mortgages; one a five- year fixed rate at 6.79 per cent, the other a 1.5 per cent discount for two years on its standard rate, now 6.84 per cent - an effective rate of 5.34 per cent.

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