The Nationwide Building Society has decided to scrap a mortgage promise which ensured that customers would pay no more than 2% above the bank base rate.

Whilst existing customers on Nationwide’s variable home loam, called BMR, are guaranteed to pay no more than 2% above the Bank rate, new customers will be charged 3.49% above the base rate, currently 0.5%. The move will affect all borrowers who take out a home loan with the building society from this Thursday, 30 April.

Nationwide, Britain’s largest building society, introduced the 2% BMR (base mortgage rate) in 2001 in order to attract new customers. However, the new rate prompted an onslaught of complaints from existing customers who ended up paying more than the society’s then standard variable rate. Nationwide responded by scrapping the dual pricing system and refunding £90 million to some 400,000 out-of-pocket borrowers.

But the Nationwide has now gone back on its promise and reintroduced a dual pricing system, only this time new customers, rather than existing ones, will be penalised. New customers can currently choose from the society’s range of fixed-rates and tracker mortgages. However, when that deal ends in a minimum of two years, customers will automatically move on to the new standard mortgage rate, which currently stands at 3.99%, if they do not want a new tracker or fixed deal.

Nationwide’s existing 1.4 million customers will be able to move on to the market-leading BMR of 2.5% when their fixed rate deals come to an end.

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.”

The announcement of the new loan rate followed depressing mortgage figures released yesterday. The British Bankers’ Association said the number of mortgages approved for those buying a home fell by almost 7% in March to 26,097, the first decline in four months. This was 25% lower than in March 2008.

Among the major lenders, only Lloyds/Cheltenham and Gloucester and Intelligent Finance have given the same pledge of keeping the variable rate at a maximum 2% above the Bank rate, meaning that their variable rate deals tend to be cheaper than those of their competitors.

This entry was posted on Tuesday, April 28th, 2009 at 10:35 am and is filed under Banking, Housing Market, Loans, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.