Mutuals on the attack

One of the heavyweight societies has dramatically improved rates for mortgage borrowers, writes Steve Lodge

NATIONWIDE last week became the latest building society to announce better rates for savers and borrowers in a bid to head off pressure for it to join the stampede of societies shedding their traditional status and giving customers windfalls of shares or cash.

The move underlines the polarisation between societies such as the Halifax and Woolwich that are converting into banks - and yielding windfalls - and those like the Bradford & Bingley and Portman which claim customers directly benefit from societies not having to pay dividends to outside shareholders. As the largest society after the Halifax, the Nationwide's move is a significant boost to the defenders of the traditional approach. Bradford & Bingley's John Wriglesworth said: "This is like Britain during the Second World War. After holding out on our own for so long, America has just joined the war on our side."

It is borrowers who will feel the biggest benefit. Coming ahead of a possible base rate cut, the Nationwide's 0.45 percentage point mortgage rate cut could herald a further upsurge in the home loans price war. The society is cutting its standard variable mortgage rate to 6.99 per cent, giving it the lowest rate of any major lender for 30 years. Only Direct Line - on 6.49 per cent - and the telephone mortgage arm of the Bradford & Bingley - on 6.25 per cent - are lower and they do not offer discount deals.

A million borrowers with the society stand to gain from the reduction which will come in on 1 April. The benefit to a borrower with a typical pounds 50,000 loan will be about pounds 17 a month.From this week - 1 March - 6 million savers with the society will also see an average rate rise of 0.25 per cent.

Brian Davis, chief executive of the Nationwide, said improving both sets of rates would cost the society pounds 200m in reduced profits over the year and he challenged others to follow suit.

"If the banks and building societies do not match our move then this will aptly demonstrate to our customers the advantages of being with a building society committed to its mutual status. If they do follow our lead then Britain's borrowers and savers will be better off by over pounds 2bn a year and we will have demonstrated the value of ... competition."

If (an important if) the societymaintains its 0.45 per cent differential against other lenders, then a typical borrowerstands to benefit by about pounds 200 a year. This compares with basic one-off windfalls of perhaps pounds 500 that customers of societies such as the Halifax are likely to get. Savers - particularly small savers - stand to gain much more from a society offering a windfall.

Here then is a round-up of where the other big societies stand - some yielding windfalls, others in the mutual camp:

Halifax

Ten million savers and borrowers (including two-and-a-half million former customers of the Leeds Permanent - taken over by the Halifax) will get free shares worth an average of perhaps pounds 900 each when the society becomes a bank and joins the stockmarket, expected to be in Summer 1997. To get the basic handout of shares - worth perhaps pounds 500 - savers need to maintain a savings balance of at least pounds 100 or be a mortgage borrower. (If you have both you stand to get two sets of free shares). If you have savings of pounds 1,000 or more you stand to qualify for extra shares, related to your balance.

q Next step: savers will be given notice in advance of the vote on the society's conversion early next year, to top up their accounts to maximise their share allocation. So in the meantime savers should be able to withdraw money without fear of missing out, so long as they maintain a basic qualifying balance of pounds 100.

Woolwich

Three-and-a-half million savers and borrowers will get free shares worth an average of perhaps pounds 800 when the society converts into a bank, planned for the second half of 1997.

Again, there will be a basic handout worth perhaps pounds 500 and additional shares for some savers related to their balances. People who are both savers and borrowers will get two sets of the basic allocation.

q Next step: until the society publishes the details of the additional share handout - probably later this year - savers do not know whether they can touch their money without reducing their eligibility. In the meantime, all savers should ensure they keep a continuous balance of pounds 100 to qualify for the basic handout.

Alliance & Leicester

Around 2.5 million savers and 500,000 borrowers will get free shares worth an average of perhaps pounds 800 when the society con- verts into a bank, planned for Spring 1997. People who are savers and borrowers get two sets of shares.

No details have been given yet on whether bigger savers will get extra shares, so savers might be inclined to leave their money untouched to avoid upsetting their eligibility.

q Next step: The society says it will publish details of the share distribution later this year, when it will become clearer whether savers can touch their money without losing out.

National & Provincial

One million savers and 350,000 borrowers will get cash or shares in the late Summer, subject to customers voting for the recommended takeover by the Abbey National. Borrowers and more recent savers will get pounds 500 of Abbey shares. Savers who had opened accounts by 31 December 1993 will get the choice of pounds 750 in cash or shares plus an as yet undisclosed percentage of their balance. The qualifying dates for all parts of the handout have now passed. So long as savers simply keep their account open they can withdraw as much of their money as they want without affecting their eligibility.

q Next step: final details of the proposed takeover will go out next month, with voting in April. Payouts are expected in the late Summer.

Britannia

More than a million savers and borrowers will share in an annual profits payout starting in early 1997, in a move which the society describes as a "modernised approach to mutuality". Many of the society's borrowers can expect first-year payouts of more than pounds 100, but most savers are likely to get less than pounds 20. As well as the society's profitability, the dividends' value will be related to individuals' savings or mortgage balance and how long they have been with the society, with a bonus for holding other Britannia products such as PEPs. Savers and borrowers must be a member of the society for a full calendar year to qualify.

The society will also reduce its mortgage rate - currently 7.49 per cent - for borrowers of five years standing or more by 0.25 percentage points on 1 April.

q Next step: customers will be asked to register for the "loyalty bonus" scheme from May.

Bradford & Bingley

The society has already announced a rate improvement deal for its 2m savers and borrowers. It plans to keep its savings rates 0.25 percentage points ahead of key competitors, and mortgage borrowers stand to benefit from a 0.25 percentage point reduction in the society's mortgage rate from 1 March.

q Next Step: the society will make a decision next week on whether to cut mortgage rates further, in the light of the Nationwide's move. In addition it is looking at improving its deal for small savers.

Bristol & West

The society remains a favourite to be taken over, and says it is reviewing its options.

Yorkshire

Hundreds of thousands of savers and borrowers benefited from special rate improvements implemented late last year, and the society's mortgage rate - at 7.39 per cent - is currently still below the general market level of 7.49 per cent. The society is planning a further round of "mutual benefits" within the next few months.

Birmingham Midshires

The society says it remains committed to retaining its mutual status, although it might prove a takeover target. Is looking at a mutual benefits package and will make an announcement within weeks.

Portman

The society says it is strongly committed to mutuality and has consistently paid good rates to savers. It has no plans to introduce a special scheme.

Northern Rock

An independently-minded mutual, the society introduced a special discount of 0.25 percentage points for borrowers of 7 years standing or more late last year. The rate for these 80,000 borrowers is now 7.19 per cent, compared with the society's general rate of 7.44 per cent. The society is also planning to announce further special deals for its members this Spring.