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Nationwide tracker mortgages: what’s going on?

November 29, 2008 No Comment

I think I know the real reason why Nationwide has stopped people applying for its Base Mortgage Rate (BMR) mortgage. And it's not becase it's proving too popular - it's because some little-known clauses in its BMR mean that Nationwide can't offer a competitive tracker when base rate is this low.

How the BMR works

The BMR is Nationwide's standard variable rate mortgage -  you go on it when any special deal runs out, or you can apply to be on it instead of any fixed or tracker dea.

But there are two clauses in the BMR that mean that Nationwide can't currently offer tracker mortgages while its BMR is available:

  • The BMR is guaranteed never to be more than 2% above base rate.
  • And there's no floor on this. The BMR is currently 4.69% (base rate of 3% plus 1.69%, so within the 2% cap). If base rate falls to 2% next month, the BMR mortgage must be cut to 4% or less.

(The first one means it works like a tracker - this clause was introduced when trackers were at much lower margins above base rate, so wasn't a problem then. Its actual trackers were on much lower rates than the BMR.)

The problem for Nationwide's tracker mortgages

it's the second clause that gives Nationwide a real headache. Nationwide's previous trackers were at base rate plus 1.69% - but there was a base rate floor. If base rates fell below 2.75%, the tracker would remain at 4.44% (2.75+1.69).

If it repriced these in line with everyone else at base rate plus 1.99%, then no one would take out a nationwide tracker mortgage. With the same floor, the tracker would never fall below 4.74%

This is higher than the BMR rate at 4.69% - which will go lower if base rate is cut again soon. So why would you want a tracker? You wouldn't.

So Nationwide has had to pull its BMR in order to relaunch its trackers.

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