However, existing customers on the SVR in effect pay for the cost of these discounts. Nationwide felt this was unfair to loyal customers so it introduced the lower BMR last March and stopped offering discounted and capped deals.All customers on the SVR were automatically transferred to the BMR so that they were paying the same rate as new borrowers. Customers with time left to run on their discounted or capped deal still had the pay rate calculated from the SVR. Once the discount ended they would be transferred to the BMR. However, one customer complained to the Ombudsman because she felt her discount should be taken off the BMR and not the SVR.Nationwide argued that she was not being unfairly treated, as even with the discount calculated on the SVR, she was still paying a lower rate than those on the BMR (the customer is paying 4.15 per cent, while the BMR is currently 4.74 per cent).

But the Ombudsman ruled against the society.”We didn’t like it,” says Philip Williamson, chief executive at Nationwide, “but we have to play within the rules. What we decided to do was look at the Ombudsman’s decision in that particular case and apply it to all similar cases.”Nationwide customers don’t need to do anything themselves; they will be notified of the changes and reimbursed automatically by the end of June. This will cost the society £90m, with customers receiving an average rebate of £250.”This is fantastic news for Nationwide borrowers and clearly demonstrates the benefit of mutuals over plcs [as they don't have shareholders to consider],” says David Bitner, mortgage technical manager at The MarketPlace at Bradford & Bingley. “It allows them to strengthen their message and say ‘We can do these things as we put our members first.’ “However, Mr Bitner adds that it is not clear how this will affect savers. “The money’s got to come from somewhere and it could be that savings rates suffer.”Mark Harris, director at mortgage broker Savills Private Finance, warns of another consequence: “Nationwide is certainly taking the moral high ground, and the automatic switch is a great gesture, as all clients will benefit immediately. [But] I would question its ability to offer ‘new business rates’ going forward, given such a competitive BMR. The BMR is set at its discretion, as it is not linked to the base rate.

Although it’s currently 0.74 per cent above the base rate, there are no guarantees this will be sustained.”If you are a Halifax, HSBC or Abbey National customer and feel you have a valid complaint, write to your bank in the first instance. If you are not satisfied with the response, contact the Ombuds- man. You can do this yourself or via ProACT Legal, which has set up a service to take class action against dual-rate lenders who refuse to refund borrowers.The Financial Ombudsman Service, South Quay Plaza, 183 Marsh Wall, London E14 9SR; ProAct Legal, . Nationwide made a brave, and expensive, move last week when it decided it would pay out £90m in compensation to customers.

Moneynetmortgagesearches Nationwide made a brave, and expensive, move last week when it decided it would pay out £90m in compensation to customers. The building society will give an average of £250 to about 400,000 customers who were overcharged because they were on the society’s higher mortgage rate.
While Nationwide’s action is to be applauded, the pressure is now on the other lenders – Abbey National, the Halifax and HSBC – reprimanded by the Financial Ombudsman last year to make a similar gesture. But because this blanket compensation goes beyond what the Ombudsman demands, the Halifax and HSBC have already indicated they have no intention of being quite as generous, while Abbey National is awaiting the outcome of an appeal. The Halifax has said it will deal with complaints on a “case-by-case” basis, a far more cost-effective route.Customers who get compensation will be pleased, but ultimately they are likely to pay for it with higher mortgage rates. While Nationwide borrowers will all be moved to its base mortgage rate (BMR) – which at the current 4.74 per cent is half a percentage point below the old standard variable rate (SVR) – rates may well rise faster than they have done in the past.For example, if the Bank of England raises the base rate by 25 basis points, Nationwide might increase its BMR by a greater amount in order to cut its margins and remain competitive.The current situation is down to the mortgage price war that broke out just under a year ago.