This week, the UK’s largest building society and one of the country’s largest lenders took the unexpected step of abolishing the higher of its two standard variable mortgage rates.
In a move brought about by a recent Financial Ombuds- man (FO) ruling, Nationwide will move around 400,000 borrowers onto its new, lower standard variable rate on 1 April, resulting in a £250 cheque for an average £50,000 mortgage borrower.
‘Dual pricing’ has been the thorniest issue facing mortgage lenders this year. Nationwide’s move follows Halifax’s decision to abolish the lower of its two SVR mortgages in response to a successful claim brought by one of its borrowers.
Nationwide’s move means its new SVR of 4.74% will apply to all existing borrowers ‘ a move estimated to cost the society £90m. While Nationwide’s move has to be applauded for the benefits it will pass to borrowers, the move is likely to have serious repercussions throughout the mortgage market.
Major banks and other lenders have dismissed Nationwide’s decision as a PR stunt to claim what moral high ground remains. These lenders have countered the move by claiming the new business rates they offer significantly undercut Nationwide’s standard rate. Discounted rates are typically 1% to 1.25% below Nationwide’s new SVR with the option of remortgaging when discount period expires. On an average 25-year £50,000 mortgage this equates to a saving in excess of £30 a month.
Although the move benefits those customers sitting idly on Nationwide’s SVR these are the very customers who should consider remortgage schemes available from other lenders.
Nationwide has taken the honest stance and retrospectively agreed to reimburse those clients who have been treated ‘unfairly’ by their dual pricing policy. Other lenders are dealing with queries on an individual basis, with thousands of cases being reviewed.
While Nationwide is to be applauded for its honesty, it remains to be seen how it can offer competitively priced mortgage products going forward, with so many borrowers paying less interest. Nationwide claims there will be no direct impact on savers, which begs the question where this £90m will come from. The answer is to remove aggressive new business rates, which are likely to play into the hands of major competitors. At this stage, an eight-figure sum seems a high price to pay for the principled stance.
Alan Mudd is associate director of Savills Private Finance