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The lone arranger

The mortgage market is still in the midst of a fierce battle and a further cut in interest rates has only served to heighten the competitive mood.

The major players are jock-eying for position and assuming very different tactics but it was Nationwide&#39s radical stance which triggered the battle.

CML communications manager Bernard Clarke says the focus is presently on customer loyalty but says it is too soon to see what impact the players&#39 different strategies will have.

He says: “We should not be surprised to see further developments in the coming months, as the mortgage market is so competitive.”

Opinion is divided on why remortgaging continues to run at high levels. For some, this marks a sea-change, with confident consumers willing to re-evaluate their mortgage continually and transfer to more competitive rates.

Others see the level of current remortgaging as simply a reflection of the many people coming out of existing uncompetitive mortgages and penalty periods being targeted with eye-catching offers and low rates.

Clarke suggests it is press coverage of the price wars and the merits of remortgaging which have been feeding this phenomenon.

London & Country mortgage specialist Johannes Kennard cites the many very attractive mortgages on offer with rates of around 5 per cent. He singles out Abbey National&#39s 2.25 per cent discount and Britannic&#39s flexible 5.35 per cent fixed-rate mortgage.

Where does this leave Nationwide? Senior press officer Jennifer Stoddart accepts that the company has set out its stall and it is up to the market to judge the success.

She says Nationwide has taken a radical stance which brokers will take some time to adjust to. As for the current levels of remortgaging, she says existing Nationwide customers will automatically benefit without having to take any action themselves or go through the hassle of remortgaging.

Kennard doubts the wisdom of Nationwide&#39s stance of focusing on its existing customer base, saying that taking up a mortgage on a lower rate is the equivalent of a pay rise, which people are unlikely to refuse.

He points out that a 1.5 per cent rate difference on a £60,000 interest-only mortgage would be £900 or £1,800 over the typical two-year discount period.

Yet all that glitters might not be gold. Unlike the many brokers who are not recommending Nationwide mortgages and general press reports saying the company&#39s stance is untenable, Scottish Amicable national mortgage manager John Malone predicts that by the end of year most lenders will be falling into line with Nationwide.

What is presently taking place is a temporary struggle for market share, with the temptingly low rates being dangled for only a limited time.

But why now? Why should Nationwide risk going out on a limb in advance of the competition?

Halifax suggests Nationwide&#39s stance is determined by its battle to stay mutual. If this is the case, privileging existing customers over new borrowers is a marketing move aimed at shoring up the vote for mutuality.

Nationwide refutes Halifax&#39s suggestion of having closed shop to new business but says the pattern of sales has shifted. Stoddart says more business has been coming through its branches to balance lower levels of business coming through brokers. Nationwide is, however, unable to supply any figures. Stoddart points out the resulting economic benefits of not paying brokers&#39 fees.

Nationwide&#39s move to Cat-marking its entire product range is also at odds with current perceived wisdom.

Again, Stoddart suggests the Catmarking restrictions on charges and fees might also be a factor in lower broker sales. Nevertheless, she strongly denies that Nationwide is abandoning the broker market.

Even if some in the industry are watching Nationwide with bewilderment, securing customer loyalty will no doubt become more of an issue as the costs of the current battles start to be felt.

Malone suggests there are products being developed which might foster subliminal emotional ties to lenders. For instance, if seller&#39s packs survive the general election and are not sidelined by a lukewarm re-elected Labour Government, second-time borrowers will need financial assistance to fund the average £700 cost.

Malone says lenders are considering seller&#39s information pack mortgages which would undertake to underwrite the costs of the seller and, in doing so, also promote longterm loyalty.

Halifax senior press officer Alison Kellington says the most significant issue facing mortgage lenders is how low mortgage rates can go. With interest rates at their lowest for 37 years and global economic factors indicating that further cuts are likely, she says the difficulty will be in balancing the needs of savers against those of borrowers.

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