Credit crunch means mortgage providers are turning customers away
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It seems that the credit crunch is turning our traditional understanding of marketing on its head. Nationwide, Britain’s second largest provider of householde mortgages is increasing the price of its product to discourage customers from buying!
A fascinating article in The Times today, which reports that Nationwide will increase the rates on its tracker mortgage deals by more than half a percentage point in an attempt to become less competitive. .
This move is similar to the strategy being pursued by the Northern Rock, which is activily encouraging existing customers nearing the end of their current mortgage deal to seek their next mortgage from competitors.
It all sounds very strange. Given the substantial effort and cost involved in marketing financial services to potential and existing customers, why on earth would a mortgage provider actually look to turn business away?
And why are mortgage rates rising when most commentators expect the base interest rate to fall during 2008?
The answer lies in the credit crunch. Just under a third of Nationwide’s mortgage funding comes from the wholesale money markets, where the price of borrowing has soared after the credit crunch. In other words, the cost of providing a mortgage (the interest rate that the bank or building society must pay in order to obtain funds) is rising, so households with new mortgages must pay more too.
All this is bad news for the housing market, and businesses that rely on a strong, vibrant housing market for their demand.
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