Nationwide's share of net lending collapses

Nationwide admitted yesterday that it has seen practically no growth in its mortgage business in the past six months following a radical decision earlier this year to scrap discount deals as a way of enticing new customers.

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Nationwide admitted yesterday that it has seen practically no growth in its mortgage business in the past six months following a radical decision earlier this year to scrap discount deals as a way of enticing new customers.

The UK's largest building society reported a 97 per cent fall in net mortgage lending in the six months to 4 October, recording £100m of new business after redemptions by customers leaving the organisation.

For the first three months of this period net lending plunged into negative territory after it's main source of business – recommendations by mortgage brokers – practically dried up.

Negative net lending is seen as very serious as it means the business is not growing, because customers leaving the company are greater than new people being taken on. The same fate befell Halifax in 1998 and it cost its then chief executive, Mike Blackburn, his job.

Nationwide launched a new strategy in May to offer a "fair deal" to existing borrowers by scrapping short-term discounts. These deals are usually only offered to new customers and are mainly subsidised by long-term borrowers on a higher repayment rate.

Many mortgage brokers stopped recommending Nationwide mortgages and instead pointed customers in the direction of discounts being offered by its rivals.

The move, coupled with customers leaving the society, led to a dramatic drop in Nationwide's share of net new mortgages to just 0.2 per cent from 10 per cent last year. The society's share of the entire mortgage market was only slightly lower than its historic 8.5 per cent because one set of new business results could only have a limited impact on its £47bn total mortgage book.

Nationwide yesterday vowed to continue with the fair deal strategy. Stuart Bernau, the marketing and commercial director of Nationwide, said: "We did not think it was fair to get loyal customers to subsidise new business and we still think that. We do not see any reason to introduce discounts again."

Mr Bernau maintained that the results, which led to a 19 per cent fall in pre-tax profit to £206.8m, were better than expected. "We thought we would go into negative net lending for the first six months before coming back with much stronger results in the second half," he said.

The society managed to avoid a final negative figure because it introduced a raft of fixed-rate mortgages from August and has since slashed their prices three times.

Nationwide argued that the fixed-rate mortgages do not represent a u-turn on its fair deal promise because they are open to existing and new customers. It said they were introduced from August because that was when the swap rates in the money markets were most competitive, not because it realised it was heading for negative net lending.