What Halifax will do now

Stop offering 'new' 5% variable rate Make 'old' 5.75% variable rate only standard variable rate Launch new tracker mortgage at not more than 1% over base rate

The mortgage bank - part of HBOS following a merger with Bank of Scotland - has been ordered to compensate a customer who complained, confirming an initial decision in September.

The total cost to Halifax, as well as other lenders facing similar complaints, could run into hundreds of millions of pounds if similar cases are taken into account.

Nationwide and Abbey National have both lost similar cases as well.

Price war

How much you may have lost

Halifax: �525 (cut to 5% from 5.75%) Abbey National: �770 (cut to 5% from 6.1%) per year, �70,000 mortgage, annual calculation of interest

Last year, Halifax sparked a price war between the mortgage banks by offering cut-price loans to new borrowers.

However, it kept existing customers on mortgages that were linked to a higher standard variable rate.

Customers who felt this was unfair complained to the Financial Ombudsman.

It allows you to announce you've got a lower rate in the market without all the world realising that existing customers are paying a higher rate

David Anderson, Yorkshire Building Society

One couple - Christopher Wright and his wife - queried their capped rate mortgage in May 2001 and complained to the Ombudsman that their base rate was higher than other customers'.

The Ombudsman has now ordered the Halifax to compensate the couple.

A spokesman for the Halifax said the Ombudsman's decision related to a "very specific" case, and did not mean that the bank could not operate two base rates.

Marketing ploy

Rival lenders say the policy of having two variable interest rates was unfair to consumers and the rest of the industry.

Lenders could attract new customers with seemingly cheap deals without having to cut rates for everyone, the BBC's personal finance reporter Andrew Verity said.

The Halifax will treat any additional cases on their individual merits

Halifax

"It is a marketing ploy," David Anderson of Yorkshire Building Society told the BBC.

"It allows you to announce you've got a lower rate in the market without all the world realising that existing customers are paying a higher rate."

Policy change

Halifax said it would from 1 February stop offering its cheaper variable rate to new customers.

The "old" variable rate - currently 5.75% - will be the Halifax's sole benchmark variable rate.

But the bank said it would also launch a new tracker mortgage at a rate not more than 1% more than the Bank of England's base rate.

This would give a rate of 5%.

Floodgates opened?

The eagerly awaited decision by the Financial Ombudsman could open the floodgates for similar complaints.

Halifax said it would not be offering compensation to all customers automatically, but would treat any additional cases "on their individual merits".

A spokesman said that people who felt aggrieved should talk to their local branch.

Halifax, the UK's number one mortgage lender, operates nearly 2.5 million home loan accounts, and has a market share of 19% of all outstanding mortgages in the UK.

Abbey 'disappointed'

Abbey National lost a provisional ruling after a complaint that a 6.1% standard variable rate mortgage should be shifted to the firm's new 4.9-5% tracker rate.

The bank said it was "disappointed" with the ruling.

No details were immediately made public of the Nationwide case.

The building society said it was considering its position.