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Nationwide: an innovative response to consumer demand

16th January 2006
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Despite being firmly established in the UK mortgage market, Nationwide is looking to carve out a new niche for itself by responding to customers' increasing demand for flexibility and diversity in their mortgages. To do this Nationwide is launching its 'switch and fix' mortgage, which will likely reward its creator's innovation in the short term at least.

Nationwide, one of the top five mortgage lenders in the UK, has launched a new mortgage product - a lifetime tracker with a minimum mortgage term of five years and maximum term of 40 years. The product is priced competitively, at 0.39% above the Bank of England Base Rate and allows mortgage holders the options of making monthly over-repayments of GBP500 and payment holidays.

The new product, described by the lender as a 'hassle-free tracker mortgage for life', provides good value to customers looking for an attractive long-term deal. But more interesting is the fact that Nationwide has also introduced a 'switch and fix' facility available on the lifetime tracker and its two- and three-year trackers. The facility allows borrowers to switch to a fixed rate product with the lender at any time without paying any redemption penalties. As such, it offers mortgage holders the obvious benefit of opting out of their tracker product should their circumstances and needs change.

While the move sees Nationwide responding to customers' increasing preference for more flexibility in the way they manage their mortgage commitment, the lender has also designed a product feature which aims at retaining customers, as the flexibility to switch to a fixed rate mortgage will reduce the number of customers remortgaging with another company as economic conditions change.

The take-up of fixed rate mortgages is very much correlated to the economic situation, the housing market, consumer confidence and borrower expectations and penetration tends to increase during period of rising base rates, which is a situation that has occurred recently and will undoubtedly happen again in the future.

Indeed, in today's mortgage market, characterized by intensive competition and high churn, being able to retain customers by having the flexibility to change as customers' needs change has become one of the major priorities of lenders. Therefore, Nationwide's new mortgage will likely garner much interest and business, at least while it has its corner of the market to itself.

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