Stranded homebuyers could win millions from lenders

An ombudsman's ruling against Halifax and Nationwide could affect as many as 1m mortgage holders and pave the way for compensation payouts which may total hundreds of millions of pounds.

The financial ombudsman service yesterday ordered Halifax to compensate borrower Chris Wright after ruling it acted unfairly in leaving him stranded on its "old" standard variable mortgage rate when it introduced a new, lower rate a year ago.

The ruling opens the way for thousands of compensation claims from other borrowers in a similar position and prompted Halifax to scrap the lower rate which it announced amid a blaze of publicity last February.

Halifax said it would stop offering mortgages based on the new variable rate - currently 5% - to new customers from February 1, and the old 5.75% rate would be its benchmark rate. It said there would be no change for existing borrowers, and added that the decision was "not expected to have any impact on the group's financial or market positions".

Nationwide building society lost a similar appeal yesterday, as did HSBC last year. Details of the Nationwide case have not been disclosed but it is understood to be similar and to involve the payment of compensation.

Between them, Halifax and Nationwide have several hundred thousand borrowers who could stand to benefit from the ruling - perhaps as many as 500,000 to 1m, according to some estimates.

This could translate into a total compensation bill running into hundreds of millions of pounds, although Halifax said the decision was "specific and relates only to Mr and Mrs Wright", and that it would "treat any additional cases on their individual merits".

Its decision to make people who feel they are affected put in complaints was criticised last night by the Consumers' Association, which called on Halifax to look for those borrowers who had lost out and compensate them.

At issue is the decision by Halifax, Nationwide and sev eral other lenders to bring in, lower standard variable mortgage rates but to prevent some existing customers from taking advantage of these, insisting that they were tied to the "old" standard rate.

These people typically held discounted-rate or capped-rate mortgages, or were on the standard variable rate after enjoying a special deal. Angry borrowers, including Mr Wright, complained in droves, claiming the lenders had effectively created two standard variable rates and left them marooned on the higher one.

David Hollingworth at mortgage broker London & Country said any Halifax borrower linked to the old standard variable rate might have a claim. He could not see Halifax taking every complaint to the ombudsman "because the ombudsman has already made it clear that similar cases will be treated in a similar fashion". He said that in cases where the situation was similar to Mr Wright's Halifax would opt to pay compensation.

Mr Wright, 51, of Henley-on-Thames, Oxfordshire, a Halifax customer for 31 years, had a mortgage with a rate capped at 7.25%, and was told that customers with capped and discounted-rate loans taken out before March 2001 remained linked to thehigher rate.

Walter Merricks, the chief ombudsman, ruled that the bank should put Mr Wright on the lower rate, refund the money he had been overcharged - estimated at about £750 - and pay him and his wife Brooke a further £150 for the inconvenience they suffered.