Raising the standard for an army of borrowers

The Office of Fair Trading and the banking ombudsman both confirmed this week that they are examining complaints from a growing number of Halifax and Nationwide mortgage holders angry at their exclusion from the lenders' new standard variable rates (SVR).

In one of the biggest postbags received at Jobs & Money for some time, readers have bombarded us with letters and emails expressing their frustration with Halifax and Nationwide, after an article last week alleging "double standards" at the lenders. Over the next three pages we highlight some of the letters, plus (opposite) the formal response from the two lenders to some of the correspondence.

At issue is the much-trumpeted interest rate cuts by the lenders; Nationwide introduced a new 6.49% "base mortgage rate" and then the following day Halifax cut its rate by 0.75% to 6.75%. Hun dreds of thousands of borrowers have benefited, in a move that has cost the lenders around £300-400m.

But both lenders decided to keep their many borrowers (300,000 in the case of Nationwide) who have discount and capped mortgages on the "old" SVR. The result has been an explosion in anger, with many alleging that the lenders have breached contract terms which promised that their discounts would be tied to the SVR.

It also emerged this week that 30,000 homeowners who took out loans through Halifax's broker subsidiary, Halifax Mortgage Services Limited (HMSL), will not see any of the benefit from Halifax's rate cut. Like Anne Rannie from Edinburgh, featured overleaf, many will have taken out a mortgage with documents "plastered" with the Halifax logo.

But last year Halifax reversed HMSL into another one of its subsidiaries, the former building society Birmingham Midshires. Callers to Halifax are told that, no matter the origin of the loan or the logo on their documents, their mortgages are now with Birmingham Midshires - Midshires is maintaining its SVR at 7.5% compared to Halifax's new SVR of 6.75%.

Halifax spokeswoman Alison Kellington says: "Many HMSL mortgages were inherited when we bought BNP Mortgages or they have come to Halifax through brokers. It has always been made clear that although HMSL is a subsidiary of Halifax, it has had its own products and distinct terms and conditions. At no time could you have bought such products from a Halifax branch. In any case, most of the 30,000 are on special deals at rates below 6.75%."

Nonetheless, the OFT and the banking ombudsman are now planning to cast their eyes over the Halifax and Nationwide contracts. An OFT spokesman said: "We have had quite a few complaints from borrowers about this matter. There are questions of fairness that need to be looked at." The OFT is likely to focus on the interpretation of what "standard variable rate" means. Another reader featured overleaf, Peter Davies of London, claims he has already established from the OFT that SVR means "openly marketed competitive rate". If so, then borrowers with contracts which promise a discount from the SVR should be able to have that discount applied to the new SVR. However, the OFT declined to comment on the interpretation to Jobs & Money.

The banking ombudsman also confirmed that it has already begun to receive complaints in the form of "deadlock" letters which have to be issued by the lender before a borrower can take their case to the ombudsman. Judging from the number of letters to Jobs & Money threatening to go to the ombudsman, its case load is about to increase rapidly. However, a spokeswoman for the ombudsman says the average case takes six months before it reaches adjudication. But unlike the OFT, the ombudsman can force lenders to make direct compensation payments of up to £100,000. The banking ombudsman, which says it would need to see mortgage offer letters plus the terms and conditions, can be contacted at PO Box 4, South Quay Plaza, 183 Marsh Wall, London, E14 9SR. Its consumer helpline is 0845 766 0902.

Nationwide may also face challenges in other forms. Unlike Halifax, Nationwide is a mutual which is owned by its members - and is currently facing yet another attack from carpetbaggers. Many readers who contacted us this week said the move had betrayed their trust in mutuality and that they would now be voting in favour of the carpetbaggers.

One or two readers are even considering legal challenges against the lenders based on contract law, and have asked us to print their email addresses overleaf to mount a joint action.

What the Halifax says

Halifax's new variable base rate of 6.75% is available to all customers, but has immediate relevance to those existing customers who are paying the standard variable rate of 7.5% and those applying for new mortgages.

The vast majority of our mortgage customers who are already on special deals are paying at a rate below the new variable rate. There is no immediate need for these customers to transfer to the new rate as this would mean they would lose out financially. Once their special deal comes to an end they will be helped to move over to the new rate, which includes daily interest, the fairest method of mortgage calculation.

As with all lenders who have followed our move to narrow the gap between new and existing customers, existing special deals, such as capped or discounted rates linked to the standard variable rate, will remain in place until the deal comes to an end. Halifax's standard variable rate will mirror any rate changes to the new Halifax variable base rate.

Halifax is the only lender to provide customers who are currently in an extended repayment period with the flexibility to move to the lower variable base rate immediately, and take their 'repayment' fee with them. All these customers have to do is telephone their local Halifax branch.

The new Halifax variable base rate does not apply to Halifax Mortgage Services Limited (HMSL) customers. This mortgage book was acquired from BNP and it has always offered its own branded products sold through selected intermediaries. Interest rates have always been set independently from the Halifax and customers have separate terms and conditions.

HMSL is now part of Birmingham Midshires, the specialist mortgage lending arm of the Halifax.

Halifax says it believes that two of the readers featured overleaf may have misunderstood or been misinformed and that they may qualify for a switch to the new standard variable rate. For more information about its new variable rate, Halifax can be contacted on 08456 00 10 00. Local branch numbers can be found on Halifax.