Nationwide says won't pass on further rate cuts

LONDON (Reuters) - Nationwide, the country's second-biggest mortgage lender, said it will not pass on any further Bank of England rate cuts to customers holding tracker loans, defying government pressure on lenders to match BoE rate reductions.

Nationwide, owned by its borrowers and savers, said it planned to invoke a clause in its tracker loan contracts to avoid passing on any further cuts in the BoE base rate below its current level of 2 percent.

"Clearly we need to balance the needs of our borrowers and savers, so if the base rate goes below 2 percent in the future, we will enforce the floor at that level," a Nationwide spokesman said on Friday.

Most of Nationwide's tracker loans incorporate a "collar" allowing it to ignore base rate cuts below 2.75 percent, but the lender waived this when the central bank cut its benchmark rate by 1 percentage point to just 2 percent last month.

Tracker loans carry a repayment rate that rises and falls in line with the base rate.

The BoE's rate-setting monetary policy committee is widely expected to cut the base rate again in an effort to bolster the flagging economy when it holds its next monthly meeting on January 8.

The government has repeatedly urged the country's lenders to help improve credit availability by passing on in full any rate cuts by the central bank.

The government's intervention comes as most lenders are attempting to shrink their loan books in an effort to bolster their capital strength, heavily depleted last year by the credit crunch and subsequent banking crisis.

About 200,000 of Nationwide's 1.4 million mortgage customers hold tracker loans, the group's spokesman said.

(Reporting by Myles Neligan)