HBOS will launch a 25-year, fixed-rate mortgage today in an attempt to attract cash-strapped homebuyers, The Times has learnt. Yesterday, the bank disclosed that its share of new mortgages had more than halved this year.

Shares in the bank closed down 2.8 per cent at 942p each, despite a 13 per cent rise in pretax profit to £2.9 billion and a 23 per cent boost to the interim dividend.

HBOS’s share of the new mortgage market plunged to 8 per cent in the six months to June 30, down from 21 per cent in the first half of last year, after a pricing strategy introduced at the end of 2006 went disastrously wrong.

The bank tried to increase the cost of remortgaging with Halifax, its high-street brand, in the hope that other banks would follow. Instead rivals used the opportunity to grab market share. As a result, its share of the total mortgage market fell to 19 per cent from 21 per cent.

Benny Higgins, chief executive of HBOS’s retail division, said yesterday that the bank immediately corrected its pricing strategy and had returned to holding between 15 and 20 per cent of the market by May.

HBOS today will become the second bank in recent weeks to launch a 25-year, fixed-rate mortgage, in response to recent criticism by Gordon Brown and Alistair Darling that the lack of competitively priced, long-term fixed-rate deals on the market was preventing first-time buyers from joining the housing market. Nationwide, the building society, launched its own 25-year fix last month.

The new deal, sold through Halifax, will offer an interest rate of 6.39 per cent, with no early repayment charges after ten years.

Difficulties in the mortgage market forced HBOS’s underlying retail pretax profit down by 8 per cent in the first half to £1 billion. Results were also hit by a £79 billion loss of refunded unauthorised overdraft charges.

HBOS is the third bank this week to reveal the cost of the charges. HSBC said that it had paid out £116 million to customers who had claimed that the charges were unfair. Lloyds TSB said that it had refunded £36 million.

Meanwhile, HBOS’s insurance business reported a 1 per cent fall in the amount of premiums that it underwrote to £868 million, mainly due to a drop in sales of payment protection insurance after the announcement of a Competition Commission enquiry into the cover.

The bank said that it took a £60 million hit on floods in June and expected a slightly higher bill from July’s deluge. Andy Hornby, chief executive of HBOS, said that this would not be used as an opportunity to increase the cost of insurance: “We’ll stay competitively priced beause it’s an area we want to keep growing quickly.”

Profits in corporate banking jumped by 54 per cent to £1.2 billion, as HBOS insisted that it was not exposed to a recent crunch in leveraged lending.

HBOS yesterday declared an interim dividend of 16.6p per share and announced plans for continuing share buybacks.

The bank increased its dividend to earnings ratio from 41 to 46 per cent and pledged to keep it at that level going forward, without a reduction in dividend cover.