Nationwide signals end to mortgage war

One million homeowners will have to pay more for their mortgages from next month, following a decision yesterday by Nationwide Building Society to raise its standard lending rate by 0.25 per cent. The move signalled the first retreat in the mortgage war as the housing market recovers.

But the Nationwide opened up the competition on another front by raising the rates it pays to savers in a bid to win deposits next year from the building societies planning to convert to banks.

Other lenders said yesterday that they had no plans yet to raise mortgage rates. Nationwide will still has one of the lowest variable rates on offer, at 6.74 per cent, as part of its policy of demonstrating the benefits of mutuality.

Philip Williamson, commercial director, said: "We have been looking after our million borrowers and now we want to look after the 6 million savers a bit more." He said the society remained committed to returning pounds 200m of profits to its members.

He pointed out that many savers locked into accounts with building societies planning to join the stock market would be able to move their investments during the next few months. Tens of billions of pounds worth of deposits are held in accounts qualifying for free shares at societies such as Halifax and Woolwich, which are converting to banks next year.

Nationwide's mortgage increase will add just under pounds 7 to the monthly cost of a pounds 50,000 repayment mortgage, although at pounds 362.03 this will remain about pounds 7 below the monthly payment charged by lenders such as Halifax or Barclays.

It plans to increase rates on a range of savings accounts by 0.1 to 0.3 per cent.

Other societies said they did not plan to raise their own mortgage and savings rates immediately. Birmingham Midshires last week raised its mortgage rate by a quarter-point to 7.24 per cent.

"We have no plans at present to change although obviously we will have to remain competitive," a spokesman for the Woolwich said.

An Alliance and Leicester spokeswoman agreed. "Holding shares will give our members another stake in the organisation," she added.

David Charlton, a spokesman for the determinedly mutual Skipton Building Society, said that although the Nationwide remained a good flagship for the sector, it was competing on two fronts. "They are playing in the mutual league, where some smaller societies are very aggressive on savings rates, and in the size league, where they are taking on the biggest mortgage lenders," he said.

Rob Thomas, building societies analyst at City bank UBS, said Nationwide had been out on a limb before yesterday's move. "It marks a recognition that the benefits of mutuality only go so far," he said.

Mr Thomas suggested that Nationwide might have been having difficulty attracting enough deposits in the light of growing mortgage demand.

Its move follows the quarter-point increase in base rates to 6 per cent a fortnight ago.

Other lenders admit that they are likely to increase their mortgage rates if base rates rise again, but Mr Williamson said Nationwide would not necessarily do so.

Gary Marsh, director of strategy at Halifax, said another rise in base rates would make a mortgage increase more likely. But he denied this would halt the housing market recovery

"One of the dangers in the housing market is of too sharp a recovery. In a sense we welcomed the psychological impact of the Chancellor's last move because what we want is a steady, sustainable recovery."

Official figures yesterday brought further evidence of the recovery. New housebuilding orders rose for the third quarter running in July-September - up 2 per cent on the previous quarter and 7 per cent on the same period a year ago.