Nationwide loses battle over dual mortgage rate

Nationwide may have to compensate thousands of customers who are losing out due to its policy of having two mortgage rates, following an unfavourable ruling by the financial ombudsman.

The ruling follows a complaint by a customer of the UK's largest building society that he had been disadvantaged because his discount mortgage was pegged to Nationwide's old standard variable rate of 6.24 per cent, rather than its new mortgage rate of 5.74 per cent.

The ombudsman criticised the practice of keeping discounted and fixed-rate mortgages linked to the lender's old mortgage rates. If Nationwide does not manage to overturn the decision, it will have to compensate some of the 100,000 customers who are now on its old standard variable rate and also have a discount mortgage.

Nationwide has 1 million mortgage customers, most of whom were moved to the new, lower rate when the lender decided to improve its offers in February.

Similar rulings were made by the ombudsman last month involving a Halifax customer and a borrower with HSBC. The three organisations now face the prospect of having to pay millions of pounds in compensation to customers.

HSBC, Halifax and Nationwide are contesting the rulings. Cheltenham & Gloucester scrapped its lower rate to avoid a showdown with the regulators.