Borrowers who were trapped in redemption tie-ins when lenders began introducing reduced standard variable rates (SVR) for new customers last spring could get compensation.
Following a breakthrough ruling by the Financial Ombudsman (FO), Halifax has been forced to scrap its variable rate for new borrowers ‘ currently 5% ‘ in favour of its 5.75% variable rate in place for existing customers.
The ruling follows a case involving Mr and Mrs Wright, who were tied to a capped rate deal when the lender’s new rate was introduced. The customers claimed they were entitled to move to the lower rate despite being tied into the deal. Halifax has been forced to pay compensation.
Other lenders, including Nationwide, also introduced dual rates last year. Consequently Nationwide has also been subject to a ruling by the FO on its ‘fair mortgage strategy’ ‘ where a new mortgage base rate was introduced for borrowers ‘ but details of the case cannot currently be disclosed.
The FO said the latest ruling might pave the way for more compensation cases.
Iris Baker spokesperson for the FO, said: ‘The outcome of the Halifax case applies only to that complainant, but it may open the door for similar cases to be investigated.’
Halifax criticised the FO’s ruling. Mark Hemmingway, spokesperson for Halifax, said: ‘We do not agree with the Financial Omubudsman’s decision, as it makes it harder to pass on better rates to customers. The real beneficiaries are the lenders that have not reduced their rates.’
Nationwide said it was disappointed with the FO’s ruling on its own case, but did not expect a flood of new compensation claims.
Jackie Lawrence, spokes-person for Nationwide, said: ‘We cannot comment on our ruling by the FO as the borrower concerned has not gone public. We will make our position clear to borrowers concerning this ruling at the end of February.’