Bank of Scotland stands up to challenge

The market didn't have to wait long to see the arriviste's response to efforts to frighten it out of the domestic mortgage market. Bank of Scotland this week undercut its rivals' efforts to minimise its effect on a traditionally cosy and high-margin mortgage business, cutting its variable rate by 0.3 of a percentage point to 3.69 per cent.

Its rivals are reluctant to follow suit. In part, they believe Bank of Scotland has yet to show it is attracting enough business to worry them. They also believe, probably correctly, that euro-zone interest rates are on the rise next week by at least a quarter of one percentage point and have adopted a wait-and-see attitude.

Although not grabbing the headlines, other elements of the Bank of Scotland announcement may be more important in garnering business from other lenders. First it has offered to pay £500 towards the legal fees of people switching mortgage lenders. That would go a long way to ease worries over costs of up to £1,000 in transferring a standard variable mortgage.

It has also committed itself to staying within 1.5 percentage points of ECB interest rates, putting the onus on others to do the same. Mind you, in its domestic market in Scotland, its rates are one percentage point above admittedly higher British rates.