Nationwide offers refunds

Nationwide Building Society is set to give 400,000 borrowers refunds totalling ?90m after charging them a higher mortgage rate than other customers.

The move comes after the Financial Services Ombudsman ruled that the mutual had acted unfairly in keeping a borrower on a mortgage rate linked to its higher standard variable rate, instead of transferring it to its new lower base mortgage rate.

It said the refund would restore customers to the position they would have been in if they had been transferred to the new lower rate as soon as it was introduced last March.

When the society launched the base mortgage rate (BMR), which at 4.74% is 0.5% lower than its standard variable rate (SVR), it immediately moved more than half a million SVR customers on to it.

The society said it would transfer other borrowers, such as those on discount or cash back mortgages linked to the SVR, on to the new rate when their existing deals came to an end.

But following the ombudsman's decision the society decided to bring the process forward.

The society announced today that it was withdrawing its SVR from April 1, by which time all borrowers would have their mortgages linked to the BMR, which is currently 4.74%, compared to the 5.24% charged under the SVR.

Customers who were not immediately moved from SVR-linked mortgages to the BMR will be written to by the end of March and receive refunds by the end of June.

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

One mortgage expert 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 chief executive Philip Williamson said: "The introduction of our base rate mortgage was a strategic move to bring fairness to our borrowers. We believed that this strategy was already the fairest in the UK market and we still do. The ombudsman has decided that, in one individual case, we did not go far enough."

He added that the society did not want to force other members in a similar position to go to the ombudsman, and so decided to bring forward its plan to move everybody on to the new rate, and refund them as though they had been on it from day one.

Nationwide's move is in sharp contrast to Halifax, which scrapped its lower rate after a similar ruling by the ombudsman 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.