Nationwide offers compensation

Nationwide Building Society will today offer to compensate customers who lost out when they were denied a new, lower base mortgage rate introduced last February.

The move, which would cost the country's second largest lender at least £50m, follows a ruling by the financial services ombudsman in favour of a Nationwide customer who was stranded on the society's old standard variable mortgage rate when it announced the lower rate a year ago. The ombudsman said the society had acted unfairly and ordered it to pay compensation to the customer, who had a discount mortgage.

Up to 400,000 Nationwide customers may benefit from the move, which is likely to see their mortgages shifted to the society's lower "base mortgage rate", currently 4.74%. Until now they have been tied to the society's higher standard variable rate of 5.24%.

Many borrowers may also receive compensation for the period since last February during which they have been held to the higher standard rate.

The beneficiaries will include borrowers who had discount, capped and fixed-rate mortgages where the "tie-in" arrangement left them on the standard variable rate after the end of the deal period.

For some customers it could mean a savings of hundreds of pounds a year.

One mortgage expert last night said that compensation per customer which had lost out on the 0.5% gap over the past year is likely to average £350, based on a typical loan of £70,000 .

Nationwide's move is in sharp contrast to Halifax, which scrapped its lower rate after a similar ruling by the ombudsman earlier earlier this month. It said it would stop offering its 5% rate and return to its old benchmark standard variable rate, currently 5.75%.

Halifax has also been accused of dragging its heels on compensation. It says that the ombudsman ruling referred to specific documentation for one individual customer, Mr Chris Wright, and does not apply to the hundreds of thousands of its customers on its old higher rate.

But Nationwide has not escaped criticism over a delay in reaching its decision. After the ruling, it, along with Halifax, considered taking the ombudsman's ruling to a judicial review. But speculation last night focused on the potential reputational damage that could be caused by appealing to the courts in a process that can take up to five years.

However, the Building Societies Association has indicated that it is considering a legal challenge to the scope and powers of the newly-formed ombudsman.