Borrowers denied cheaper mortgage in line for payouts

Hundreds of borrowers could be in line for compensation after Cheltenham & Gloucester announced yesterday that it did not plan to challenge an ombudsman's ruling over its dual mortgage rate.

Hundreds of borrowers could be in line for compensation after Cheltenham & Gloucester announced yesterday that it did not plan to challenge an ombudsman's ruling over its dual mortgage rate.

Last week the Financial Ombudsman Service ordered the former building society to reimburse a customer the money they would have saved had they been allowed to switch to the lower of the group's two standard variable rates.

Yesterday C&G said it had decided not to appeal against the judgment, and within the next two weeks would be writing to hundreds of customers who could now qualify for similar payments. The group would not say exactly how many people were affected or what the total payments would be.

The ruling relates to the C&G variable rate, which was introduced on 30 April last year to reward existing borrowers by offering them a rate that was lower than the C&G standard variable rate. The group offered the new rate only to customers who were not locked into a mortgage deal with C&G, such as a fixed or capped-rate mortgage.

The rate was withdrawn on 10 September after the ombudsman's decision that a similar dual pricing policy offered by Halifax was confusing.

The ombudsman is currently hearing a second case against C&G involving an application for the lower rate once it was withdrawn. The group said that it believed it would win this case, and urged customers to wait for the outcome before they considered any action.

Cheltenham & Gloucester's managing director, Roger Burden, said: "We are disappointed with the ombudsman's ruling. We feel that the adjudications against all lenders have resulted in the withdrawal of initiatives that were designed to benefit borrowers, not disadvantage them.

"Consumers benefit from strong competition between lenders, and there is a danger that this could be substantially diminished if we all fear that new lending initiatives might render us liable to retrospective financial penalties."

In February Nationwide announced it was giving 400,000 borrowers refunds totalling £90m after charging them a higher mortgage rate than other customers.

The move came after the 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 them to its new lower-base mortgage rate.