Nationwide pays dear for loans move

Nationwide yesterday revealed the heavy price it has paid for abandoning cut-price home loans this year, reporting a slump in its share of the mortgage market.

Britain's biggest building society said that on a net basis - offsetting departing borrowers against new mortgage customers - its market share fell to 0.2% in the six months to October 4 from 10.1% in the same period last year.

The decline in new mortgage business contributed to a fall in pretax profits, but Nationwide said it was committed to its home loans strategy and insisted that after having "taken the pain" it would be vindicated.

The society made waves in February when it decided to break with industry tradition by abandoning low-rate mortgage deals that lure new customers at the expense of established borrowers. That meant an end to competitive discounted rate loans - at a time when many borrowers were clamouring to obtain such deals in order to benefit from falling interest rates.

Nationwide said: "We refuse to price unfairly and to write loss-making business."

Pretax profits were £206.8m, down from £253.8m for the same six months last year, although the society said that during the period it had passed on a record £210m to its 10m members in the form of better rates and fewer charges.

Nationwide's new mortgage strategy means that all of its deals are available to new and existing borrowers. One result has been that Nationwide loans almost disappeared from the "best buy" tables that many borrowers scan before taking out a mortgage, and the society suffered a fall-off in business from mortgage brokers.

To add to its woes, Nationwide concedes that it has lost a sizeable number of customers who had come to the end of deals and decided to switch to another lender. Nationwide said it would have lost even more if it had done nothing.

Stuart Bernau, marketing and commercial director, said the 0.2% market share figure was better than its anticipation of "neutral or worse" in the strategy's first few months.

New mortgage business had picked up significantly since July, he added. The society's pipeline of mortgage business between approval and completion stands at a record £3.3bn.

"We have taken the pain and things are going very positively. I am confident that by the end of the year we will be reporting a very healthy position in terms of mortgage growth in the second half of the year and it will completely vindicate what we are doing," Mr Bernau said.

On the savings front, the picture was a lot brighter, with the society taking in 13.2% of all new retail savings cash during the period - well above its natural market share of 7.5%.

Nationwide said its "firm commitment" to mutuality continued to deliver benefits to members and enabled it to pass on £1.6bn to them in the form of better rates over the past five and a half years.