Nationwide adds over 50% to the cost of loyalty

The UK’s largest mutual lender Nationwide, has today introduced a new variable Standard Mortgage Rate (SMR) of 3.99% for new borrowers, a sharp increase from the 2.5% Base Mortgage Rate (BMR), which will continue to apply to existing customers.  Existing customers, who elect to stay with Nationwide once their fixed or tracker deal comes to an end, revert to the BMR which is guaranteed to be no more than 2% above bank rate. At 2.5% it is currently one of the best variable deals, so like other lenders Nationwide have been quick to restrict access, especially as the borrower is usually free to switch lenders without penalty in the future.

Other lenders refer to this rate as their Standard Variable Rate (SVR), but most are not linked to bank rate so strictly, which allows lenders to decide how much of any cut in bank rate to pass on. As Nationwide’s new SMR has no guarantee, it will operate in a similar way.

In addition to new customers, those existing borrowers who stick with Nationwide at the end of their current deal, and take a new deal such as a fixed rate, will revert to the new SMR once this deal ends.

Nationwide say they need to balance the needs of savers and borrowers, and by making this move, they will have greater flexibility when “pricing” new mortgage deals and be able to provide better deals for savers.

While this is not good news, it is unlikely to affect any borrowers for two years (usually the shortest term fixed or tracker deals). Even then, in a different mortgage climate when interest rates are unlikely to be as cheap, most borrowers are likely to revert to avoiding SVRs in favour of more attractive deals.

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