The society's decision to give pounds 200m of its annual profits back to its seven million members increases the pressure on Abbey National, Halifax, Alliance & Leicester and Woolwich to follow suit.
It follows similar, but less dramatic "mutuality bonuses" by other societies, including Yorkshire and Bradford & Bingley building societies, which have also led to cuts in mortgage interest rates.
Brian Davis, Nationwide's chief executive, yesterday shrugged off suggestions that the giveaway to members - which also increases savings rates by 0.25 per cent - was nothing more than a marketing stunt.
"We are absolutely confident that we can sustain our approach, maintaining prudent profit levels to support and invest in a growing business, at the same time delivering highly competitive products and services," Mr Davis said.
He also held out the promise of further rate cuts if the Chancellor, Kenneth Clarke, cuts base rates next month. Mr Clarke is widely expected to announce a cut - the third in four months - after his next meeting with the Governor of the Bank of England on 7 March. This would take their level down to 6 per cent and would probably trigger another round of mortgage rate reductions.
But Abbey National last night refused to be drawn into the latest round in the savings and mortgages war. Charles Toner, managing director of retail development at Abbey National, said: "We will not be responding to the cut which we can see is a short-term marketing initiative. We do not believe the cut in mortgage rates is justified in the current economic climate."
Rob Thomas, building society at UBS, said: "This is a very substantial package. This really is the large one. I cannot see how other societies will not be able to follow suit. They can all afford to do something. The pressure will be on those planning to seek a public listing. They will worry that if they cut their margins to the same extent as Nationwide then they will be seriously cutting into their profits, If so, their future shareholders won't be very pleased with them."
David Gilchrist, general manager at the Halifax, said: "We see it as a competitive move. It is a very competitive market place. We will look at it as it develops but we will not be responding immediately to this or any other medium-sized building society."
Mr Gilchrist rejected suggestions that Halifax's decision not to follow suit was fuelled by the fear that its prospective share price might be affected when the society de-mutualises next year.
Hopes that Nationwide's mortgage cut will further boost the market led housebuilder George Wimpey to add 8 pence to its shares, which closed at 139 pence.
However, Bristol & West was yesterday forced to dispose of its loss-making Hamptons estate agency chain for pounds 3.8m to one of its rivals, Cluttons. The society said its year-end results would show a loss on disposal of pounds 34m.Reuse content