Banks must scrap two-tier mortgages

High Street banks have been forced to offer their lowest rates to all customers, bringing an end to the practice of reserving the cheapest products for those poached from other institutions.

Halifax, Abbey National and Nationwide have all been ordered by the Financial Ombudsman Service to change their policies.

The directions follow the case of Chris Wright, a businessman from Henley-on-Thames, who took Halifax - the biggest mortgage lender - to the service.

Mr Wright had discovered that when his discounted deal came to an end he was not allowed to take advantage of the lender's new standard variable interest rate of five per cent. He was forced to pay 5.75 per cent.

Halifax, which has more than 2.5 million borrowers, had launched the new five per cent rate with a massive publicity campaign, saying it was trying to offer customers a better deal.

The lender, however, excluded its existing customers on fixed and discounted deals, prompting many complaints. The similar two-tier pricing strategies in place at the Nationwide Building Society and Abbey National led to the Ombudsman also ruling against them.

Mr Wright, a Halifax customer for more than 31 years, said: "Existing customers have subsidised new customers for years and years; this was just a stage too far."

The ruling means he could save about £800 a year on his £100,000 mortgage.