Landmark ruling over rates

The financial ombudsman service, the complaints-handling body for the finance industry, has ruled that the Halifax was wrong to leave borrower Chris Wright marooned on its "old" standard variable mortgage rate when it launched a new, lower rate earlier this year.

Faced with the prospect of a multi-million pound payout, the bank is appealing - but it will have to pull something pretty special out of the hat to overturn the ruling.

Halifax unveiled its headline-grabbing new variable mortgage rate in February. It was 0.75% below the old one and at first glance it looked like all borrowers would enjoy a substantial cut in their monthly mortgage payments. But it soon emerged that a sizeable contingent of its existing customers holding discounted rate and capped rate mortgages would not see their rate tumble - they would continue to be tied in to the higher standard rate.

Furious borrowers claimed the bank had "invented" another standard variable rate and left them stranded on the higher one.

Mr Wright, of Henley-on-Thames, Oxfordshire, has been a Halifax customer for 31 years, and in 1998 he transferred to one of its deals with a rate capped at 7.25%.

When Halifax introduced the lower rate, he contacted the bank to confirm that his pay rate would fall to 6.75% - but he was told that customers with capped and discounted rate loans taken out before March 1 remain linked to the old, higher rate.

He complained to the ombudsman which has ruled in his favour, saying that he should have been charged the lower rate. Crucially, the ombudsman has ruled that, as of last March, Halifax's "base rate" is the lower, not the higher, rate.

Adjudicator Michael Ingram ruled that Halifax should put Mr Wright on to the lower rate, refund the money he has been overcharged since March 1 - estimated at around £250 - and pay him £150 for the inconvenience suffered.

This case is significant because there are hordes of other Halifax borrowers in a similar position to Mr Wright. The bank has around 2m borrowers on mortgage deals linked in some way to the old variable mortgage rate (currently 6.75%).

Many won't be affected because they are on fixed-rate and base rate tracker deals, but it still leaves perhaps 500,000 or even 1m-plus people who could potentially benefit from the ruling. It is highly likely that the Wright decision will also apply to the 40 or so similar complaints involving the Halifax which the ombudsman has received, and to any others that come forward.

The ruling could also set a precedent for Nationwide and Abbey National which, like Halifax, brought in new lower mortgage rates while leaving some borrowers stranded on higher rates. Adjudications from the ombudsman service on complaints from their borrowers are expected soon.

Halifax's appeal against the ruling is unlikely to be successful unless the bank can produce significant new evidence or show there was a glaring error in the original judgment.

Meanwhile, HSBC is in the same position as Halifax. A complaint against it has been upheld by the ombudsman and HSBC is appealing against this decision.

So, what should you do if you think you could be due compensation? The result of the Halifax and HSBC appeals could be known in the next few weeks. If the Halifax ruling stands, any cases similar to Mr Wright's that go before the ombudsman are amost certain to succeed.

Strictly speaking, Halifax would only be required to compensate those who take their complaint this far, but it is quite likely the bank would come under intense pressure to restore everyone who is affected to the correct position.

There's probably no harm in getting your complaint in to the financial ombudsman service now. It can be contacted on 0207-964-1000, website: www.financial-ombudsman.org.uk. But it will not consider an individual's case until they have gone through the company's internal complaints procedure first and have reached deadlock.

If you complain to the lender, it's possible that it will roll over and quietly offer to put things right. If it doesn't, you'll need to go to the ombudsman. Alternatively, watch this space. We will keep you informed of developments.