The world's biggest building society said it would also join Bradford & Bingley, another mutual lender, in pledging to hold its rates until 1 August.
The challenge was issued as Cheltenham & Gloucester, the mortgages arm of Lloyds TSB, boosted interest rates by 0.25 percentage points. C&G borrowers will now pay 8.95 per cent, a rise of pounds 20.20 a month on a pounds 100,000 loan. Alliance & Leicester also raised rates yesterday from 8.7 to 8.95 per cent.
Nationwide, which offers 8.1 per cent, said it would only charge more if banks raised savings rates, forcing it to follow in order to protect its competitive position. Mortgage rates would then have to rise in line.
C&G increased savings rates on two accounts, its instant transfer account and its 10-day notice account, to 7.5 and 7.25 per cent respectively.
Brian Davis, chief executive of Nationwide, said: "It will be interesting to see if competitors can afford to follow our lead. Nationwide has not increased mortgage rates since September 1997, so we are providing borrowers with practically a full year of rate stability in spite of two base rate rises."Reuse content