The rates come tumbling down

By Melanie Bien

Apparently, a "mortgage war" broke out last week. But were the rate cuts made by Nationwide and Halifax really that dramatic? Writing days after the event gives the benefit of hindsight, and now that the dust has settled, it is hard to see what all the fuss is about.

Apparently, a "mortgage war" broke out last week. But were the rate cuts made by Nationwide and Halifax really that dramatic? Writing days after the event gives the benefit of hindsight, and now that the dust has settled, it is hard to see what all the fuss is about.

Yes, it's good news when any lender cuts its mortgage rates. But the Monetary Policy Committee cut the base rate a couple of weeks ago, so lenders should have followed with their own reductions anyway. And these new rates are aimed mostly at existing customers - those who fail to shop around once they come off the discount or fixed-rate period, and go instead straight on to the lender's standard variable rate (SVR). Rather than pay a high rate of interest - which is the case now because most high-street lenders have an SVR of around 7.5 per cent - existing borrowers will get a better mortgage deal from Halifax or Nationwide.

But nobody should be on a variable rate anyway. The ease and low cost of remortgaging means that there's little excuse for not seeking out a better deal, from another lender if necessary.

Nationwide has been accused of taking a cynical approach to the rate cut, in light of the fact that there may well be a vote later this year on whether the UK's largest building society should demutualise. If a resolution is put to members, the argument goes, Nationwide is hoping that its largesse will be remembered and stand it in good stead.

Halifax is in a very different position. It has to keep shareholders happy, and can only do this if it retains plenty of customers. It is the UK's biggest mortgage lender, and to remain that way it has to come up with competitive rates and a changing range of mortgages. A spokesman says that "retention is the name of the game". Last year Halifax predicted that it would see a 10 per cent decline in lending in 2001 as competitors offered eye-catching deals, so it has had to be more proactive. Its mortgage review - which entails writing to existing borrowers and alerting them to any cheaper deals it may offer - has led to 150,000 customers transferring their mortgage.

Halifax has been criticised for not automatically transferring its existing variable- rate borrowers on to the new rate. In its defence, the bank says that contracts have to be altered because interest will be calculated on a daily rather than annual basis. Yet critics have said that this is not really necessary.

Skipton Building Society, for example, automatically switched all its mortgage customers on to daily interest from 1 January last year. There was no need for customers to apply for anything. Last July, Barclays also automatically switched mortgage customers from annual to daily interest.

Now Halifax is writing to all its mortgage customers and is spending heavily on advertising to alert them to the fact that they should apply for the new rate.

Maybe it would have been cheaper, less hassle and much better public relations to have switched them all automatically.

* m.bien@independent.co.uk