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Dual carriageway

Abbey National, the last of the five big lenders to face action over dual-rate loans, could be facing payouts of more than £10m to 15,000 borrowers.

But it could be worse, Abbey has followed the HSBC and Cheltenham & Gloucester path in opting to pay out only to customers who made complaints while the rate was available rather than compensating everyone.

Maybe it&#39s because life&#39s complicated enough for Abbey that it has decided to take this route. But by withdrawing its classic tracker and hanging on to the lifestyle plan, many people in the industry think they could be making a major mistake.

London & Country mortgage specialist David Hollingworth says: “Abbey have got rid of the classic but if existing customers complained about being unable to move to the lifestyle tracker mortgage it could leave them open to even more problems.”

Abbey has now closed its base rate tracker mortgage to new business but continues to run the lifestyle variable plan, which includes a tracker.

The classic tracker was for new customers only and offered a rate of 0.9 per cent above the Bank of England base rate. Complaints were made by existing customers unable to switch from their product to the classic tracker operating at a lower rate.

Abbey says the lifestyle loan, a flexible deal offered at 1 per cent above Bank of England base rate, is a completely different product but, like the classic, it is only available to new customers so again this product and its lower rate will not be available to everyone.

So while Abbey&#39s new customers took advantage of better rates, old customers were trapped in a higher-rate mortgage but only those who asked to switch at the time will be compensated.

The Financial Ombudsman ruled that the lender had acted unfairly and has said it should pay out to borrowers on capped, discounted, cashback and cashback discount deals. But because the rulings are made on a case-by-case basis, the ombudsman cannot order the lender to pay out across the board.

Both HSBC and Cheltenham & Gloucester have successfully limited their liability to more compensation claims by withdrawing their tracker rates early on. In terms of mortgage business, HSBC is a much smaller lender so had less to lose from dual pricing. Cheltenham & Gloucester has also emerged relatively unscathed. But mortgages make up £20m of Abbey&#39s business and the action will cost it dearly.

Hollingworth says: “Abbey is the landmark case that everyone has been waiting for over the last 12-18 months. Our perspective is that really the lender has been burnt and something that was well intended and was going to be good news for the borrower has seriously backfired and borrowers have got confused as a result of it.”

Nationwide is the only lender to bite the bullet and pay all their customers compensation – a whacking£90m payout.

Hollingworth says: “Nationwide are the only ones who have come out shining from all this but it has cost them.

“The ombudsman was definitely swamped and will be happy to see the back of the cases. It has now essentially drawn a line in the sand on what will affect the next cases.”

The watchdog is likely to take the same tack with the rest of the Abbey claims as they have all been grouped under the same lead case.

Halifax started the dual-rate trend in February 2001, swiftly followed by Nationwide in March. But borrowers quickly became disgruntled. If they missed press coverage of the difference between the rates then they missed out.

Although Abbey says it will calculate complaints from the date they were received, it is unclear when these sums will eventually be paid out. In recognition of the delay, Abbey is paying an extra £150 on top of the interest difference. Those who want to transfer to the classic tracker rate will be switched free of charge.

On March 1 this year, Nationwide decided to pay out the balance in interest owed to all 400,000 customers, calculating each claim individually, which worked out at around £320 for a £60,000 mortgage.

Nationwide spokeswoman Jennifer Stoddart says: “Ultimately, we believe it is about paying out and putting our members first. I think one of the unfortunate things is that many borrowers will still feel that they have not been treated fairly. Abbey and Halifax are acting to the letter of the ruling whereas we believe that we are acting on the spirit of the ruling.”

Woolwich and Northern Rock, which both avoided using dual rates, declined to comment on the ruling but Woolwich spokeswoman Emma Keens, says: “Having reviewed the option of introducing dual SVRs when the other lenders did, we decided against it. We stuck to our guns and it has proved more transparent for our customers.

“Woolwich has absolutely no plans to go into the SVR market. All our products were available to existing customers and our trackers are accessible both to new and existing customers.”

Woolwich says it would prefer to advise customers to offset trackers against other savings and accounts rather than getting involved in SVRs.

The Council of Mortgage Lenders says it believes that lenders will take on board the result of the ruling and make sure they do not create problems for themselves in the future. It does not think the cases have significantly damaged the market and would be more concerned if lenders did not continue to diversify their ranges of products as a result of the action.

CML spokesman Bernard Clarke says: “Borrowing is still at record levels in the industry and service is still extremely competitive for the consumer. It is an innovative, buoyant market.”

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