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New customers will revert to a significantly higher interest rate than existing customers when their introductory offer ends
Nationwide is introducing a two-tier mortgage system that will mean some of its customers end up paying a significantly higher interest rate when their existing home loan deals end, it emerged today.
The change means Britain's biggest building society will effectively have two standard variable rates (SVRs) on the go – one for existing customers, who will enjoy a rate of just 2.5%, and another for those taking out mortgages from this Thursday onwards, who will have to pay 3.99% when their deal ends.
The move is likely to raise eyebrows in some quarters as two-tier mortgage rates have been hugely controversial in the past, and Nationwide itself has campaigned loudly for rival lenders "to treat both new and existing customers fairly".
In 2001, two-tier rates were the subject of a financial ombudsman ruling after several major lenders brought in lower SVRs but banned some existing customers from taking advantage of these, insisting they stay tied to the "old" higher standard rate.
But Nationwide said its move was very different, and added that with interest rates so low the time had come to focus on the needs of its 10 million savers.
The building society introduced its base mortgage rate (BMR) in 2001, which replaced its SVR. The BMR is guaranteed to be no more than 2% above the Bank of England base rate, which means it currently stands at a very competitive 2.5%. The society has 1.4 million mortgage customers, all of whom will either go on to the BMR when their current fixed or discounted deal ends, or are already on it.
Now Nationwide is reintroducing an SVR in the form of a "standard mortgage rate" (SMR) which offers no such rate guarantee and is being launched at 3.99%. Anyone who takes out one of the society's mortgages will move on to the SMR when their deal ends.
"On a £200,000 interest-only mortgage, that margin means an extra £2,980 per annum. It could, however, give Nationwide an opportunity to improve the pricing on the deals they're offering," said Richard Morea at mortgage broker London & Country.
The society's SMR is higher than some other lenders' SVRs, including its rival the Halifax, where the rate is 3.5%. However, a number of other lenders have SVRs that are well above 4%.
Andy McQueen, mortgage director at Nationwide, said the mortgage market "has experienced fundamental changes due to the prevailing economic and market conditions. 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".
He added: "The new SMR will provide us with more pricing flexibility, something which is essential in helping us to offer our savers more attractive products in the future."
Nationwide's BMR is so low that some customers have asked to pay redemption fees to switch from more expensive fixed-rate deals on to the variable rate. However, the society has refused their requests.
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