Building societies pour scorn on Abbey National for pushing up mortgage rate

Mutual building societies yesterday attacked Abbey National for raising its mortgage rate by 0.25 of a percentage point. Nationwide, the largest remaining mutual society, questioned whether Abbey still wanted new mortgage business. Andrew Verity reports.
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The debate over the benefits of mutuality was re-ignited yesterday when Nationwide said Abbey's decision to boost its standard variable rate to 8.7 per cent "makes one wonder whether they are serious about doing any new business".

Abbey's increase in the cost of borrowing is in line with the interest rate rise announced last week by the Bank of England. Halifax, which recently converted to a bank, said it was likely to take a decision on whether to follow the rise within a week.

The rise by Abbey prompted mutual building societies to mock the new banks for failing to give customers the best value on mortgages. In Abbey National's case, 1.6 million customers will see mortgage repayments rise.

A spokesman for Nationwide said: "Compared with our rate of 8.1 per cent, they are now 60 basis points higher. They can only be hitting their existing borrowers who may well be tied in to their mortgages.

"We are very sad that the Abbey have had to put their rates up and are concerned for all mortgage holders."

Nationwide said that it had loaned pounds 1.1bn over the last six months. That compared with just pounds 100m by Abbey National, which is 11-times its size.

Both Nationwide and Bradford & Bingley have issued a challenge to other lenders to keep their rates down as low as the mutuals. Bradford & Bingley, which has a variable rate of 7.95 per cent, committed itself last Thursday to leaving mortgage rates unchanged until at least the end of January 1998.

Abbey and Halifax both hit back at the remarks. Andrew Pople, retail managing director at Abbey, said: "During the course of the year, Abbey National has consistently passed on the benefit of base rate rises to savers, who outnumber borrowers by 7 to 1. We see no reason to change our approach on this occasion."

Abbey National said the changes would mean an extra pounds 2.10 a week to the average borrower with a repayment mortgage. However, it has not yet announced new rates for savers, which it said would be announced shortly. A spokesman played down comparisons based on the variable rate, saying 60 per cent of all new mortgages were now fixed-rate mortgages.

A Halifax spokesman said: "We won't be making any announcement today, though now Abbey has moved it has altered the whole market. Any pressure for rate rises is coming from the savings side - from supermarkets and insurance companies."

Abbey's rise means that its average mortgage holder has seen repayments rise by 12.3 per cent since the general election in May. For a repayment mortgage of pounds 50,000 borrowed over 25 years, monthly repayments were pounds 339.60 before the election. Five interest rate rises later, the same borrower is paying pounds 381.30. The across-the-board rise of 0.25 of a percentage point will affect larger mortgages more dramatically. For a 25-year repayment mortgage of pounds 125,000, repayments have risen by 12.7 per cent since May, from pounds 881.87 to pounds 993.69.