Abbey National penalised by ombudsman

Abbey National is faced with a bill that could run into tens of millions of pounds after the financial ombudsman today ruled that its mortgage pricing policy was unfair.

The bank was one of a handful of mortgage lenders who enraged customers last year when it applied a dual pricing policy, which meant that existing customers were locked into a higher rate mortgage while new customers took advantage of new, widely publicised, lower rate products.

Abbey National had appealed against an earlier ruling against it by the ombudsman but this was today rejected, a decision which Abbey said it is "disappointed" with.

However, the bank said that it would not be taking the matter any further and that it will make a refund of interest from the date each customer affected first made contact with it "in recognition of the delay in responding to their complaint."

Abbey is not the first lender to be reprimanded by the watchdog. Nationwide was forced to shell out an initial ?80m when a similar ruling was found against it and Halifax lost out on an appeal over its mortgage pricing earlier this year costing it ?12m in compensation.

The Abbey decision relates to its cashback mortgage deal which was linked to its standard variable rate rather than its lower base rate tracker mortgage, much to the dismay of existing customers. Abbey has now closed its base rate tracker mortgage to new business.

The bank has suffered a tough year, culminating in the resignation of its chief executive Ian Harley last month following a profit warning in the previous month. Abbey National shares are currently valued at 735p, a large drop from its year high of 1148p.