The UK's largest building society claimed the "mutuality gap" allowed it to go on offering rates at least 60 basis points lower than plc rivals such as the Halifax, which were obliged to pay dividends to shareholders.
The announcement defied expectations that Nationwide would be forced by the rising cost of lending to raise its rates in January, when it will increase the rate of interest it pays on savings accounts.
Nationwide is selling new variable rate mortgages at 8.1 per cent, while the Halifax charges 8.7 per cent. The building society is at the same time competing with supermarkets such as Tesco and Sainsbury by offering an instant access postal account which pays interest of 6.7 per cent.
The margin between the best savings rates and borrowing rates, from which the building society extract most of its profit, is now less than 1.5 points, leading quoted lenders to question whether Nationwide's position is sustainable.
In contrast, Halifax offers interest of just 3.45 per cent on its instant access account, leaving it with a margin of more than 4.5 per cent between saving and lending rates.
Brian Davis, Nationwide's chief executive, said: "After a tremendously successful 1997, we are continuing to build on the natural advantage we hold as a building society.
He added: "Over the typical life of a mortgage, 7 years, and based on rates available from 1 January, a Nationwide borrower would be pounds 1,911 better off. We aim to make 1998 a happy new year for all our customers."
However, Nationwide was careful to stress that the promise would not hold if the Bank of England's Monetary Policy Committee decides again to raise base rates.
The move follows an announcement last week by Bradford & Bingley, another mutual building society, that it would raise interest rates for savers by up to 0.45 percentage points. It is now offering 6.8 per cent on its instant access postal account and is pledged not to boost its variable rate of 7.95 per cent before 1 February.
However, Bradford & Bingley's subsidiary, Mortgage Express, has been unable to demonstrate the benefits of mutuality. Rather than trading on the gap between savings and borrowings, the wholly-owned company has itself to pay market rates when it borrows capital on the money markets.
A spokesman for the Halifax said standard variable rates were less relevant now that the vast majority of new mortgages were fixed-rate loans. But he conceded that the bulk of existing borrowers, who have variable rate mortgages, would be affected.Reuse content