Four French banks are suspected of colluding to fix mortgage rates, in an investigation being undertaken by the French trading standards authority.

The banks concerned are Banque Populaire, Caisse d'Epargne, Crédit Agricole and Crédit Mutuel.

French newspaper reports suggest that at least two regional offices (Brittany and Centre) of these banks set up a ‘non-aggression pact’ to limit competition in the purchase of mortgages held by their existing clients.

Reports suggest that the practice was taking place during 2005/6, when mortgage rates in France were declining, and borrowers stuck on a fixed rate could see the possibility of obtaining a new loan on more advantageous terms.

Whilst most French banks often apply early redemption fees, there are normally repayment windows available when the loan can be redeemed at no additional cost.

In order to fully investigate the allegations, officials from the Direction générale de la concurrence, de la consommation et de la répression des fraudes (DGCCRF) swooped on bank offices and removed documents and computer records belonging to several senior bank officials.

There has been very little public response from the banks involved, no doubt most embarrassed that the investigation has leaked out.

This is not the first time that French banks have been involved in a mortgage rate-fixing scandal. Seven years ago, no less than nine French banks were found guilty of colluding on mortgage rates in the early 1990s, resulting in a record breaking fine of €175m.

At the time, the banks acknowledged that the practice of renegotiating mortgages with other lenders was costing them several million francs a year.

Someone taking out a mortgage with a bank is likely to remain a customer all their life, and in transferring a mortgage to a competitor, the lender risks losing not only the loan, but the bank account operated by the borrower.

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You can read more about morgages in France by reading our comprehensive guide to French Mortgages.