The Nationwide is scrapping a mortgage promise which ensured that customers would pay no more than 2 per cent above the bank base rate. Instead, customers will be charged 3.49 per cent above the base rate under a new standard mortgage rate. The move will affect all borrowers who take out a home loan with the building society from this Thursday, 30 April.
The society introduced its base mortgage rate (BMR) in 2001 to attract new customers. But it prompted a storm of complaints from existing customers who were left paying more with the Nationwide's then standard variable rate. Under the onslaught the society abandoned the dual pricing strategy and repaid £90m in compensation to some 400,000 out-of-pocket borrowers.
Now the Nationwide has reintroduced dual pricing for borrowers – with the difference that this time new customers will be penalised. They can currently choose from the society's range of fixed rates and trackers, but when their deal ends, they will be forced to switch to the new standard mortgage rate, which is currently 3.99 per cent, if they do not want a new tracker or fixed deal. The Nationwide's existing 1.4 million borrowers will still be able to switch to the BMR, which is a market-leading variable rate at 2.5 per cent.
The change was criticised by mortgage experts. Melanie Bien, a director at Savills Private Finance, said: "This penalising of new customers seems out of place for a lender which has usually prided itself on offering the same terms and conditions to new and existing customers."
It is not the Nationwide's first u-turn this year. The society announced in March that it was tearing up its policy of having no loading fees on credit card transactions abroad. From 6 May it is introducing a 0.84 per cent charge every time its credit card is used outside Europe.
The society defended its new mortgage rate, saying it had to act due to the prevailing economic and market conditions.
Andy McQueen, the mortgage director at the Nationwide, said: "We are currently in a very low interest rate environment, which can be challenging when balancing the needs of both our savers and our borrowers."
Peter O'Donovan, head of mortgages at BestInvest, questioned the timing of the move. "It is difficult to understand why Nationwide is scrapping its mortgage guarantee now for new borrowers. It will be at least two years before they move on to the new rate, but the economy should have improved by then."
The loan rate news followed the publication of depressing mortgage lending figures yesterday. The British Bankers' Association said the number of mortgages approved for those buying a home fell by almost 7 per cent in March, the first decline in four months. The number of mortgages approved for house purchases fell to 26,097, 6.8 per cent fewer than in February and 25 per cent lower than in March 2008.
The gross mortgage lending figure of £8.9bn was the lowest since April 2001, and was down 47 per cent on March 2008. "The figures show it would be unrealistic to expect the mortgage market to recover in a steady and consistent way in the current economic environment," warned the BBA's statistics director, David Dooks.Reuse content