Mortgage refunds for 'unfair' rates

Thousands of mortgage borrowers could receive millions of pounds in refunded interest and compensation following a ruling by the Financial Ombudsman's office.

Customers of the Halifax, HSBC, Nationwide, and Abbey National may benefit from a complaint made by a Halifax customer, who protested that he was being charged a higher variable rate than new customers. Chris Wright, who has been a Halifax customer for 31 years, took out a loan capped at 7.25 per cent in 1998, when the Halifax's prevailing standard variable rate was 8.95 per cent. A capped rate mortgage limits the maximum amount of interest you pay, but can fall in line with any cuts to the lender's standard variable rate. So when the Halifax introduced a new lower standard variable rate - currently 6 per cent - last March, he expected his capped interest rate to fall to match this.

Not so. The Halifax told Wright that he would be tied into the Halifax's older and more expensive SVR, currently 6.75 per cent, until August 2004, when his capped-rate deal expired. He could either pay early redemption penalties to switch to the lower SVR or continue with his capped- rate deal. In March, Wright calculated that this would cost him an extra £500 a year and, believing that he should be transferred to the lower SVR, he complained to the Financial Ombudsman. 'It's not so much about the money, although over the next few years it could cost me thousands of pounds, but more about the principle of the way they are treating us,' he says.

The Financial Ombudsman's office agrees. An adjudicator has ruled that the Halifax should refund overpayments made by Wright since 1 March, and pay him £150 for any inconvenience suffered. The adjudicator has also ruled against HSBC in a similar case brought by a borrower with a discounted rate mortgage, and is expected to rule on complaints against the Nationwide and Abbey National in the near future.

Both the Halifax and HSBC have appealed against the rulings to the Ombudsman. HSBC has already passed new evidence to support its case to the Ombudsman and expects a final ruling by the end of September. The Halifax has been given until the end of September to present new evidence, and hopes for a ruling by late October.

Mark Hemmingway, a spokesman for the Halifax, claims the adjudicator did not ask for full information relating to Wright's case or the Halifax's decision to introduce a lower standard variable rate. The bank believes the new evidence it can provide will swing the Ombudsman's ruling in its favour.

'What we said in February was that the main beneficiaries would be those on the standard variable rate. Those on special deals would see their deal through to the end and then transfer over.'

He says the situation is similar to a person paying extra to have electric windows fitted in a new car. 'If six months down the line you discovered that the man ufacturer was installing electric windows as standard, you wouldn't expect to be able to ask for your money back,' he says.

Rob Skinner, a spokesman for HSBC, agrees: 'This isn't just about two interest rates - it's about two completely separate products.'

He points out that most of the customers who have deals with a typical discount of 1.25 per cent off the old standard variable rate of 6.74 per cent are actually paying about 0.25 per cent less than those on the new standard variable rate of 5.75 per cent. 'They are not locked in by penalties - they are free to move if they want to, and as soon as their discounted deals end, they can move over to the new SVR,' he says.

The Ombudsman's office refuses to comment on the cases, but indicates that 'significant' new evidence will be required to warrant reversing the rulings.

The Ombudsman's ruling is binding only to the individual case in question, so a decision in favour of Wright does not automatically mean that all other borrowers, or even Halifax customers, in the same position will automatically receive repayments and compensation. But although the lenders in question have proved reluctant to treat all customers in exactly the same way so far, it seems likely that they will treat the Ombudsman's final ruling as a precedent.

If you are worried that your lender may not apply any possible benefits resulting from the Ombudsman's ruling to all affected customers, you need to com plain about your own situation. Put your complaint in writing to your lender first, then if you consider the response unsatisfactory (the lender is entitled to take up to eight weeks to respond), you can take the complaint on to the Ombudsman.

• Write to: The Financial Ombudsman Service (FOS), South Quay Plaza, 183 Marsh Wall, London E14 9SR or phone the helpline on 0845 080 1800 or switchboard on 020 7964 1000, or visit www.financial-ombudsman.org.uk.