Nationwide to set floor on tracker mortgage rates

Nationwide will not be reducing it’s tracker mortgage rates even if the base rate falls below 2%.

In a move that will affect 200,000 borrowers, Nationwide has decided to set a floor to it’s tracker mortgage rates when the base rate falls to below 2%.  Borrowers on its variable base rate mortgages will benefit from future cuts in interest rates however.

By invoking a clause in their mortgage contract that sets a minimum rate for tracker mortgages, Nationwide executives have decided to protect the rates of their saving accounts, rather than reduce tracker mortgages further.

Other mortgage lenders such as Norwich and Peterborough building society are enforcing minimum tracker rate clauses too, in an effort to protect their profit margins as base rates plummet, although other lenders such as Barclays do not place minimum thresholds on their tracker mortgages.

Tracker mortgages are a form of variable rate mortgage which follow the Bank of England base rate by an agreed amount.  Some lenders offer discount tracker mortgage products in which the initial interest rate tracks at a rate below the base rate.

If base rates continue to fall, those lenders without tracker rate floors may experience reducing profit margins as they struggle to match their contractual obligations with the needs of their saving accounts customers.

With a fall in base rates to 1% or lower, for example, there is even the possibility that tracker mortgage rates may be reduced to 0%, if lenders do not enforce minimum thresholds.  This is would clearly place mortgage lenders in a difficult position.