Nationwide scheme harks back to the good old days

Its new mortgage incentive recalls a time when people chose banks for life. Chiara Cavaglieri reports

Forty years ago, families saved and borrowed money from the same bank, sharing a manager who knew them by name. Now people are calling for a return to the old banking model where banks lend money only against deposits it has already taken in.

With a nod to this tradition, Nationwide launched a new Save to Buy mortgage incentive last week for first-time buyers who save with the building society.

"It used to be fairly common practice to have a 'bank for life', but people in this generation are more likely to switch banks when they are offered a better deal or experience bad service," says Martin Bamford of independent financial adviser (IFA) Informed Choices.

Britain's biggest building society is offering new buyers the chance to get attractive mortgage rates, previously available to existing customers, with a mere 5 per cent deposit. The proviso is that they must save at least £50 a month with Nationwide for between six months and three years.

"Sticking with a bank or building society for longer periods gives them a better opportunity to understand your personal finances, including your ability to stay out of debt," says Mr Bamford. "Banks should be rewarding customers for loyalty; offering preferential borrowing and savings rates for long-standing customers would be a good way to do this."

Nationwide currently offers a 95 per cent loan fixed for three years at 6.29 per cent and a five-year fix at 6.89 per cent, both with a £999 fee, although as a Save to Buy customer you would also qualify for the current Nationwide offer of a £500 discount on fees for first-time buyers.

On the savings side, you earn 2.5 per cent before tax, although with the average first-time-buyer home at £136,740, a 5 per cent deposit target of £6,837 means that putting only the minimum £50 away each month would barely scratch the surface. As a bonus, however, if you manage to save more than £2,500 for your subsequent Nationwide deposit, you're rewarded with £250 cashback. If you save more than £5,000 you earn £500, and the maximum £1,000 is available if you save more than £10,000.

"We've tried to make it as flexible as possible. Although the account must be funded with a minimum of £50 per month, customers can miss up to three months' payments within each 12-month period; if they get an extra cash boost, they can make a lump sum payment and build that into the account as well," says Martyn Dyson, Nationwide's head of mortgages.

Nationwide is not alone in offering new buyers incentives at higher loan-to-value (LTV) rates. Other lenders are prepared to offer mortgages to new buyers with a 5 per cent deposit, but most are more complicated, involving family members either acting as guarantors, as with the National Counties Family First Guarantor mortgage, or stumping up their own savings as security, as with the Lloyds Lend a Hand scheme.

There are, however, a few other building societies with more straightforward deals to rival Nationwide's Save to Buy. The First Home Saver from Nottingham, for example, offers 95 per cent LTV mortgages and a return on savings of up to 3.25 per cent plus up to £250 cashback if you then take out a mortgage with it.

With the Yorkshire/Clydesdale Regular Home Saver, you must make ongoing monthly deposits of £200 with a return that tracks the Bank of England base rate. You are then rewarded with up to £1,000 cashback if you manage to save a 10 per cent deposit or £500 if you reach 5 per cent.

Targeted accounts such as these are a good way to encourage disciplined saving. However, the underlying products still have to stand up to scrutiny. The best standalone regular saver is currently Santander fixed-rate Monthly Saver (Issue 12) which pays 4 per cent for 13 months on monthly deposits of between £20 and £250. If you open a Santander current account at the same time the rate is boosted to 6 per cent, which easily overshadows the paltry 0.5 per cent return with the Yorkshire/Clydesdale deal. Beyond regular savers, you can earn tax-free returns of 3.35 per cent with the AA's Internet Access ISA, although this include a 1.65 per cent bonus for a year.

Also, there is no way to know whether the special rates that you're saving for with Nationwide, or any other lender, will be the best deal on offer when you manage build up a big enough pot. Right now, for example, Nationwide's 95 per cent LTV rate of 6.29 per cent for a three-year fix can be beaten by Skipton's new two-year deal at the same LTV costing only 5.99 per cent, with the bonus that it has no completion fee and an application fee of £195. If better rates on savings and mortgages are available elsewhere, is there any point? And there is no guarantee of being accepted for one of these mortgage deals.

"Anything to try to help first-time buyers is welcome, but the reality is that only a small percentage of people applying for any 95 per cent mortgage are going to be accepted," says Simon Cox, the financial services director at Your-move.co.uk.

The latest statistics from the FSA show that lending at over 90 per cent LTV accounts for about 2 per cent of new advances – a figure unchanged for the third quarter in succession. So while it is positive to see innovation products and schemes, little will change for most first-time buyers until lenders loosen the purse strings.

"Just opening an account and saving regularly will not guarantee you the mortgage you require. Nationwide will still, quite rightly, go through their normal application and affordability underwriting process, and it remains to be seen whether the credit scoring hurdles are higher at this level," says Andrew Montlake of independent mortgage broker Coreco.

Expert View

Andrew Montlake, Coreco

"Nationwide's latest product is a welcome addition to a market that has been strangled in recent years and will give some first-time buyers a glimmer of hope. While it may seem innovative, in actual fact products such as these mark a return to the days when bank lending was provided on a relationship basis rather than a one-off transactional process."

PROMOTED VIDEO
Arts and Entertainment
Frank Turner performing at 93 Feet East
musicReview: 93 Feet East, London
News
Toronto tops the charts across a range of indexes
news

World cities ranked in terms of safety, food security and 'liveability'

Extras
indybest
Voices
A mother and her child
voices
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee