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Nationwide tracker mortgages will fall no further, in favour of savers

05 January 2009 / by Rachael Stiles
Nationwide has reportedly said that it will not drop the price of its tracker mortgage range any further, regardless of any possible cuts in the Bank of England base rate.

The bank is allowed to do this as a result of a clause in the contracts of 250,000 of its mortgage customers, the BBC has reported, which stipulates that it does not have to drop its tracker mortgage rates below 2.75 per cent – a clause known as a mortgage 'collar', something implemented by a number of other mortgage lenders.

Nationwide chose not to enforce this rule in December when the Bank of England cut interest rates to just two per cent, but, despite the Government calling on mortgage lenders to pass on the base rate cuts in full, the bank now says that in order to protect its savings accounts customers from sharp falls in returns, it can no longer cut its tracker mortgage rates in line with the base rate.

"Savings rates are at an historic low and this move means we will not be forced into a position where we could have to cut savings rates more aggressively than we would otherwise like to," a Nationwide spokeswoman told the BBC.

There are currently about 1.5 million Nationwide mortgage customers, and this decision will affect around a quarter of a million of them, but only the ones who have collars of 2.75 per cent – those mortgage customers who took out their home loan since November, when the collar was lowered to one per cent, will not be affected.

A further reduction in the base rate is widely expected when the Bank of England's Monetary Policy Committee meets next week.

Louise Cuming, head of mortgages at, said that Nationwide's decision not to pass on further rate cuts "demonstrates the chasm between Government rhetoric calling for lenders to pass on all rate cuts and financial reality. In the current climate we need financial stability and that starts with profitability."

She added that "Nationwide has said it wants to be able to offer decent savings rates but with some of its deposit accounts offering less than one per cent, we need to be sure that Nationwide's actions start to match its words."

Ms Cuming is concerned that this move will spark a change in the mortgage market, encouraging other lender to follow suit, and "perhaps signalling an end to any argument for the Bank Of England to cut interest rates further."

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