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Nationwide&#39s long-term value

Consumers like Nationwide&#39s new mortgage pricing so it is disappointing to find that some IFAs are less positive.

Our change in approach has been quite radical but we are convinced that, as IFAs become more familiar with what we have done, they will do more business with us.

We are receiving less introduced business but it has certainly not collapsed as some have suggested. At the same time, our branches have never been busier. While we are doing significantly more remortgage business and we are retaining more existing borrowers, we are also writing first-time and home-mover business for consumers attracted by the long-term value of our mortgage range and the absence of fees and charges.

We estimate that our remortgage business has increased tenfold, with significant numbers of borrowers coming to Nationwide from other major lenders.

Why has Nationwide taken such a radical approach and discarded new mortgage deals with heavy discounts?

The whole philosophy of our mortgage pricing is based around fairness and long-term value. We believe it is wrong to buy new mortgage business at the expense of existing borrowers.

We always recognised that this would have an impact on the amount of introduced business that we receive and we do want to convince more IFAs that the real long-term value of our products does work in the best interests of borrowers.

Mortgage introducers are clearly looking for the best deals for their clients and, at first sight, initial discounted rates may look the best. However, the combination of ref-unded fees, no mortgage indemnity guarantee, daily interest, full mortgage flexibility and a continuously competitive interest rate is clearly attractive to many consumers.

The additional long-term advantage for borrowers of moving on to our daily interest rate of 6.24 per cent, rather than an annualised rate of more than 7 per cent, has persuaded these introducers to recommend Nationwide to their clients.

The fact that all our new mortgages are Catmarked may make some IFAs reluctant to recommend Nation-wide. The position on charg- ing fees for recommending a Cat-standard mortgage needs further clarity and the need for introducers to establish clarity on this point will grow. As more lenders move to daily interest, it is also inevitable that a greater number of mortgage products will meet Cat standards. IFAs cannot ignore this issue without cutting themselves off from a growing section of available mortgage products.

We are committed to this new pricing strategy. We bel-ieve that we have found an approach that not only works for consumers but that also makes good business sense.

Every mortgage borrower who is still paying a standard rate of more than 7 per cent is not only being overcharged but is, in effect, subsidising a discounted deal for a new customer.

The latest figures from the Council of Mortgage Lenders indicate that remortgaging is now approaching 40 per cent of all mortgage business.

As more and more consumers remortgage, whether to Nationwide or to another provider, the cushion of high back-book pricing will progressively disappear.

It will become harder and harder for lenders to continue to offer loss-leading mortgage products without seriously damaging their profitability.

We are not alone in recognising this. HSBC took a similar approach to our own last year, Yorkshire Building Society this year. Cheltenham & Gloucester, Alliance & Leic-ester and Northern Rock have made all their new mortgage products available to existing borrowers. Other lenders are writing to their existing borrowers offering them lower rates.

All these moves will have, to a greater or lesser extent, an effect on new mortgage pricing. Nobody should be under any illusions – the marketplace is changing.

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