YOUR MONEY: Nationwide quits remortgage war

An end to cut-price poaching of other lenders' customers may be near, writes Clifford German

NATIONWIDE Building Society, now the third-biggest lender in the UK mortgage market, is pulling out of the discount remortgage war. It will no longer offer discount interest rates to customers of other lenders looking for a remortgage without moving home once its current mortgage sale ends on 17 July.

It will, however, continue to offer discounted mortgage rates to all borrowers who actually want to buy or move house, and its fixed-rate mortgages and remortgages to existing home-owners; these are already available equally to its own customers and to other borrowers.

It will also shortly start to compete head-on with direct mortgage lenders by offering long-term discount mortgages at rates below its standard variable rate, currently 8.34 per cent. The discounts may start at around 0.75 per cent for two or three years, tapering down to 0.25 for a further two or three years. They are intended to allow Nationwide to compete with the "permanent" discounts offered by lenders such as Bradford & Bingley Direct and First Mortgage Securities and a growing band of other direct lenders who are taking advantage of low overheads to undercut conventional lenders.

These longer-term discounts will be available to existing Nationwide customers as well as borrowers moving from other lenders, although they will be protected by penalties to discourage early redemptions. The aim behind Nationwide's decision to pull out of the discount remortgage war is to end the discrimination between customers of other lenders, who could get discount rates without moving, and existing customers, many of them of long-standing and loyal, who could not enjoy the discounts without moving.

It is, however, the first sign of a possible cease-fire in the remortgage war, which has seen all lenders offer cut-price rates to poach business by tempting customers of other lenders to switch mortgages without actually moving home. New discount offers, including both fixed rates and discounts on variable rates, are still appearing on the scene. With the exception of Nationwide, they are available to people who want to buy a home and those who want to remortgage.

Increasingly though, they include longer and stricter penalty tails, which will lock borrowers in long after the fixed and discount rates have reverted to standard variable rates. The Woolwich, for example, is intending to exact a payment of six months' interest from anyone who takes advantage of their discount and fixed rates and then tries to get out within four years.

Most two-year fixed-rate mortgage offers now impose penalties on redemption or repayments within five years. According to Miers, a Bradford-based independent financial adviser, 14 lenders have increased the penalty periods over the past three months, and 11 have increased the penalties charged. The Halifax, for example, has increased the penalty charge on its two- year fixed-rate mortgage from 3.8 per cent of the loan to 5 per cent, and extended the penalty period from four years to five. Miers also fears there has been a considerable amount of mis-selling of mortgages where borrowers have not been made fully aware of the penalties attached to cheap mortgages, because banks and building societies are not obliged to provide "best advice".

But for borrowers who have not yet contemplated switching to a fixed- rate or a discount remortgage, and are aware of the pitfalls, there is no longer any real reason to delay, especially as remortgages effective after 1 October will count as new mortgages and will immediately be affected by the withdrawal of mortgage support if the owners lose their jobs.

o John Charcol has just introduced a 50:50 mortgage, which combines a fixed-rate loan at 5.95 per cent on half the loan and a 2 per cent discount on the current variable rate of 8.45 per cent on the other half, both for two years.

It is intended to appeal to borrowers who cannot choose between a variable rate and a fixed rate in the current economic climate, and to those who have erratic incomes and hope to earn more some time in the next two years than they do at present. Up to half the discounted variable rate can be repaid at any time without penalty. There is, however, a repayment penalty of three months' interest on repayments made within the first four years, and an acceptance fee of pounds 295.