Nationwide to pay out millions

AROUND 400,000 Nationwide customers are set for compensation after the building society climbed down over its dual rate mortgage policy. Nationwide, along with Halifax and a handful of other lenders, created a new lower standard variable rate, known as the Base Mortgage Rate (BMR) for new borrowers last year much to the disdain of existing customers.

Those who had signed up to discount or capped rate deal or locked into other contracts found themselves stuck on the higher rate. The Ombudsman ruled in favour of one complainant last month, although Nationwide has since dithered on whether to pay compensation to all members affected.

Now it says it will compensate borrowers linked to the SVR and move them to the lower BMR, effectively scrapping the old higher rate. The move is expected to cost the mutual, and therefore eventually its members, £90m.

Halifax also lost a case at the Ombudsman last month but chose to scrap its new 5% rate and put all customers back on the old 5.75% tier. It says the ruling only applies to the one case and that customers would have to complain individually.

Philip Williamson, chief executive, said: 'Unlike some of our competitors, we do not believe it is right to force borrowers in a similar position to go to the Ombudsman.

'It was already our stated intention to move all our existing borrowers onto our base mortgage rate. It makes sense, therefore, to bring forward this plan and ensure all our borrowers are treated as though they had the Base Mortgage Rate from day one.'

Lenders claim that across the industry existing borrowers pay higher rates to subsidise loss-leading deals offered to attract new customers. That is why they claim to have introduced the new rates on to which they hope to eventually move all customers. The move will also save the lenders money in the long-run because there will be less intense pressure to offer special deals.

Mortgage experts predict that compensation per customer based on the 0.5% gap over the past year is likely to average £350, based on a typical loan of £70,000.

A borrower with a capped rate repayment mortgage worth £100,000 over 25 years could be due back as much as £540, according to calculations by independent mortgage broker London & Country. This takes into account both the capital eroded and the money back from monthly payments.

Nationwide will write to all customers affected. They will be switched from the old rate the BMR on 1 April, instantly reducing repayments and they will see the compensation taken off their mortgage bill at the end of June. Customers can either use drawdown to take the extra in cash or put it toward reducing monthly repayments or the length of the mortgage.