Nationwide Building Society has launched a scathing attack on mortgage banks, accusing them of ripping off longstanding existing borrowers to subsidise cheap deals for new customers.
Chief executive Brian Davis says the mortgage market has become “perverse”, with major lenders offering substantially better rates for new borrowers than for existing customers who are stuck on high standard variable rates.
Davis warns that, by exploiting the inertia of long-standing borrowers, banks are running the risk of losing custom to other lenders with lower rates.
The society estimates there are three million borrowers with mortgages totalling £100bn on standard variable rates. It says increases in remortgaging shows a growing recognition among borrowers that they cannot trust their lender to give them the best deal available.
Nationwide says if banks cut their SVRs to a similar level to that of new borrowers, it would lead to an overall saving of around £1bn a year for existing customers.
From March 1, Nationwide's mortgage base rate will be 6.49 per cent for new borrowers, simultaneously switching 500,000 existing custom-ers from its standard rate of 7.09 per cent to the new rate. The move will make it more than 1 per cent cheaper than many of its closest rivals.
The society says a customer paying 6.49 per cent on a £60,000 mortgage will save over £600 a year.
The move has prompted rival lenders to reconsider their rates.
Davis says: “The mortgage market has become increasingly perverse. Nobody should be paying 7.5 per cent on their mortgage.”