Lender agrees to ?1.8m payout

A mortgage lender has backed down and decided to pay a total of £1.8m in compensation to thousands of borrowers after Jobs & Money highlighted a complaint from one of its customers.

Last Saturday we revealed that the financial services ombudsman was investigating a complaint from a Standard Life Bank borrower who claimed they had been overcharged on their mortgage for most of last year because of the way the bank calculated people's payments.

The borrower is one of 6,000 customers who have the bank's "Futureperfect" 25-year capped rate mortgage, where the rate you pay is based on the average of the standard variable rates (SVRs) of four lenders: Halifax, Abbey National, Cheltenham & Gloucester and Standard Life Bank itself.

The overcharging complaint came about because in March last year Halifax controversially launched a second, lower standard variable rate which was 0.75% below the "old" one. Faced with a choice as to which of the two SVRs to use when calculating what Futureperfect borrowers had to pay, Standard Life Bank opted for the higher rather than the lower one.

Some of the customers felt this was not right and one took their case to the ombudsman, claiming the bank should have used the lower of the two rates, which would have meant lower monthly mortgage payments.

When Jobs & Money spoke to the bank 10 days ago it said it was aware of the case before the Financial Ombudsman Service but believed it had acted fairly in using the higher of Halifax's two SVRs. "We await the ombudsman's ruling with interest," said a spokesman then.

However, about 48 hours later, and just after last Saturday's Jobs & Money had gone to press, the bank announced it had changed its mind and would be compensating people for the loss they suffered as a result of its policy.

A bank spokesman said it had decided to review the interest rate charged to Futureperfect customers between March 2001 and January 2002 (the date when Halifax abandoned its lower rate) "in the light of recent events".

As a result, in the next few weeks all 6,000 Futureperfect borrowers will receive a compensation payment averaging £200 apiece.

This payout - which includes backdated interest - will be based on a recalculation of each borrower's mortgage payments between the above dates, using the lower Halifax rate. The payments will probably take the form of a cheque. Borrowers need do nothing - the payments will be made automatically.

Explaining its change of heart, a spokesman says the bank "had been aware of the issue" for some time, and that even before Jobs & Money intervened it had been looking at what action it might take to resolve the situation.

He adds: "We wanted clarity for the customer. We have always sought to be fair to everyone." There had been a lot in the press about so-called dual interest rates and this was leading to some customer confusion.

He says that once it decided it was going to pay compensation, it concluded that this had to be automatic and had to apply to every customer affected - an apparent swipe at the Halifax, which has been criticised for refusing to automatically compensate everyone who lost out as a result of its dual interest rates policy.

It's certainly true that the case of the borrower who complained had arguably been strengthened by the recent ombudsman ruling in favour of Halifax capped rate borrower Chris Wright, who was angry about being charged the higher rather than the lower rate.

The total compensation bill is likely to be "in the region of £1.8m," with Standard Life itself picking up the tab.

One Futureperfect borrower, north London father-of-two Alasdair Nelson, who has been pursuing a separate complaint against the bank, says of the decision to compensate everyone: "It's great news. That is a result." He adds: "Thanks for hurrying things along."

Futureperfect - which is no longer available to new borrowers - generated a lot of interest when it was launched because it was the UK's first-ever 25-year capped rate mortgage, where the amount you pay cannot go above a specified amount.

When it was first unveiled two years ago the rate on the mortgage was 6.25%. There have been two more incarnations of the deal since then, though the rate has gradually got slightly less competitive.