British taxpayers have grown accustomed to their money being frittered away. Over the years we have had failed IT projects, absurd publicity schemes, pointless non-jobs and, of course, MPs’ expenses and pensions. But the latest ingenious ruse for squandering public cash takes some beating.

Despite receiving more than £60 billion of taxpayers’ money, Halifax and Royal Bank of Scotland are offering mortgages to first-time buyers in the Irish Republic at less than half the rate that they are available in the UK. Yes, you read that right. The UK taxpayer is effectively subsidising cheap mortgages for the Irish.

Halifax, part of Lloyds Banking Group, is charging 2.74 per cent for a two-year fixed-rate deal to first-time buyers in Dublin. The nearest equivalent deal that the lender offers in the UK is at 6.14 per cent. Royal Bank of Scotland, meanwhile, is charging 2.95 per cent for a new mortgage in Ireland, compared with 5.99 per cent for a similar product in the UK. No wonder mortgage approvals slumped again last month.

The sheer scale of the discrepancy between mortgage rates in the two countries is simply inexcusable. Yes, the cost of raising mortgage finance in the eurozone is marginally cheaper than in the UK, but only by half a percentage point or less. And it is hardly as if the health of the Irish economy justifies a less cautious approach to Irish borrowers. Output is falling twice as fast in the Republic, while the country’s budget deficit makes the UK’s public finances look like a picture of health. Irish house prices, meanwhile, look even more overinflated than in the UK.

The sad reality is that these discrepancies demonstrate that banks are trying to price British first-time buyers out of the market.

The banks’ feeble defence is that they must price according to the prevailing market conditions in each country. But if this is the case, then there is a clear competitive failure in the UK mortgage market and the Government must intervene to address the problem. Ministers are certainly in a position to do so.

British taxpayers, through UK Financial Investment Ltd, the company set up to manage the Treasury’s shareholding in banks, have a controlling stake of about 70 per cent in both Lloyds Banking Group and Royal Bank of Scotland. At the very least, both banks need reminding that the capital that taxpayers provided was to prevent them from collapsing for the good of our economy, not so they could lend money elsewhere at low rates of interest. But if there is insufficient competition for first-time buyers in the UK, the Government must force lenders to act.

If something is not done soon, the British economy will pay the price.

Existing borrowers seriously undervalued

Sadly, it is not only first-time buyers suffering because of lenders’ intransigence. Many existing homeowners are also running into difficulties when they try to remortgage — mainly because of the murky world of valuations.

Mortgage rates are now so dependent on the amount of equity that borrowers have in their homes that the valuation process has become increasingly important. With some lenders, the rates available to borrowers with 20 per cent equity are as much as 1.3 percentage points higher than those with a 25 per cent deposit — a difference of £270 a month on a £250,000 loan.

Given the large sums involved, there is an obvious incentive for banks to make conservative valuations. Evidence has emerged that some lenders are doing exactly that. In one case, Halifax knocked almost 40 per cent off the value of a borrower’s home even though the bank’s own house price index has fallen by only 20 per cent. The revaluation meant that the borrower had to pay an extra £290 a month.

The systems employed by most lenders are thoroughly inadequate. Most valuations for borrowers who are remortgaging are done by analysing Land Registry or other house price data. In some cases, lenders employ outside agencies to conduct “drive-by” valuations, with someone valuing a property by looking at it from the outside. But what if a homeowner has added a new kitchen, bathroom, loft conversion or conservatory? This could add tens of thousands of pounds to a property’s value but would not be taken into account.

Banks have plenty of work to do if they are to restore their reputations in the eyes of the public. Using flawed valuation methods to squeeze more money out of borrowers is not going to help.

The sad demise of the traditional bank manager

If the huge lunchtime queues are not already enough of an incentive to avoid visiting your local bank branch, the prospect of being ushered into an office to be lectured on the need for identity theft insurance may be.

Forget any romantic notions you once had of your high street bank being a prudent custodian of your money, run by a respected and independent manager. As our cover story demonstrates, bank branches are now little more than sales networks offering second-rate products at top-rate prices.

Enter at your peril.