Nationwide axes mortgage promise

Nationwide is the UK's biggest building society

The UK's biggest building society, the Nationwide, will no longer promise new borrowers that it will peg its variable rate mortgages to the Bank rate.

Existing customers on the Nationwide's variable rate home loan, called BMR, are guaranteed to pay no more than 2% above the Bank rate, currently at 0.5%.

But new customers will have no such guarantee when their fixed-rate deal ends and they shift to a variable rate.

The society argued that it must balance the needs of savers and borrowers.

Changes

The current BMR rate for existing borrowers is 2.5%, whereas the new customers would move to its new variable rate product, known as the Standard Mortgage Rate, which is currently 3.99%.

Nationwide's stance is that they are at a competitive disadvantage because of their current revert rate Ray Boulger, mortgage broker UK's mortgage market in graphics

So, anyone who already has a Nationwide mortgage automatically moves on to the BMR of 2.5% when their fixed-rate deal comes to an end. This is the cheapest on the market, when compared with other providers' standard variable rates.

Anyone taking out a fixed-rate mortgage from 30 April will, when that deal ends in a minimum of two years, move onto the new SMR, which currently has a higher interest charge.

The Nationwide said that the change would allow it more flexibility over its new mortgage offers and allow it to provide better deals for savers.

"The mortgage market has experienced fundamental changes due to the prevailing economic and market conditions," said Andy McQueen, mortgage director at Nationwide.

"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."

Low rates

Among the major lenders, only Lloyds/Cheltenham and Gloucester and Intelligent Finance offer the same pledge that their standard variable rate will be pegged at a maximum 2% above the Bank rate.

This means that these providers' variable rate deals are somewhat cheaper than the average. Relatively few passed on the cut in the Bank of England base rate in March.

"Nationwide's stance is that they are at a competitive disadvantage because of their current revert rate and this will enable them to be more competitive," said Ray Boulger of mortgage brokers John Charcol.

"If they had accompanied the announcement with some new cheaper rates, this would have stood up slightly better, but they have not. It actually won't affect anything for two years."

Nationwide recently took over the Dunfermline Building Society's branches, good loans and deposits after the Scottish mutual was put up for sale after incurring losses of £26m.