How did all this begin?

The story goes back to the beginning of last year when the UK's major mortgage lenders were - as ever - battling to win custom from new borrowers.

All banks and building societies have an interest rate for mortgages called the 'standard variable rate' (SVR).

How to complain

Approach the company If dissatisfied with its response, go to the Financial Ombudsman

The SVR is the normal rate of interest on a mortgage paid by most borrowers, and it can move up or down depending on what the Bank of England is doing to the UK's base rate.

Mortgage lenders also offer lots of other special deals to entice new custom, which normally last for the first two or three years of a mortgage.

These can include discounted deals, where the borrower pays slightly less than the SVR for a certain period, and capped deals, where the interest rate cannot rise above a certain pre-agreed level.

Some lenders also introduced new standard variable rates which were lower than the previous ones by more than one percentage point.

Sounds like good news for mortgage holders?

It was, for some of them.

But there were also some customers paying rates under special deals, like capped and discounted rate loans, who were prevented from moving to the lower rate. Their mortgages remained linked to the old, higher rate.

Did these people complain?

Yes.

Many mortgage borrowers on these special offer deals were very unhappy at being left out of the benefits of the new rate.

One C&G customer complained to the Financial Ombudsman.

In an adjudication, the ombudsman decided that C&G had acted unfairly.

A Nationwide member complained to the Financial Ombudsman last February that he had been left paying a higher rate of interest than new members who were offered a lower standard variable rate.

The ombudsman told Nationwide it had acted unfairly.

This follows a similar ruling in September on a case bought by Halifax customer Christopher Wright.

Mr Wright and his wife wanted to move their capped-rate mortgage to the 'new' variable rate but were told by the Halifax they could not.

After looking into the matter, the body ruled against Halifax last September.

The Halifax appealed against the decision, but the Ombudsman rejected this appeal.

Great news for those people still stuck on 'old' rates?

For some, yes.

The Nationwide has agreed to move all its existing variable rate borrowers onto a lower rate, at an estimated cost to the building society of �90m.

But in the Halifax's case, the lender has said the Ombudsman's decision is specific and relates only to Mr and Mrs Wright.

Halifax has refused to compensate all customers and will only pay out to those who lodged complaints before 1 March 2002.

It has so far paid out �12m to 30,000 customers who had capped-rate mortgages and lodged a complaint before 1 February 2002.

It is offering a token �100 payment to customers who complained between 1 February 2002 and 1 March 2002.

Anyone who failed to lodge a complaint with the bank before then, and who is unhappy with the Halifax's refusal to offer universal compensation, must go to the Financial Ombudsman to seek redress.

The Halifax has also now withdrawn its 'new' cheaper variable rate.

What about C&G?

The ombudsman's adjudication is a preliminary judgement, but C&G has decided against appealing.

There are an estimated 500,000 people on products linked to the standard variable rate, but only a fraction of those affected might be eligible for compensation because the scope of the ombudsman's decision could be limited.

C&G has now decided to compensate a few hundred customers, who fall within its jurisdiction.

These customers complained to C&G while the C&G variable rate offer was still open.

The Financial Ombudsman in a recent case decision supported C & G's decision to only compensate customers that had requested a move to the lower rate when it was available.

Are any other banks affected?

Several other High Street lenders have made similar offers, and received similar complaints.

In December HSBC had its appeal rejected by the ombudsman.

But like the Halifax, HSBC said the ruling did not set a precedent and it would not be compensating other customers in a similar position.

The ombudsman has also given a preliminary ruling in favour of an Abbey National customer regarding a similar complaint.

Abbey National said it is currently considering its options.

Potentially thousands of mortgage holders could be affected by the ombudsman's decision.

However, because of the caveat that customers need to have requested a move to the lower variable rate when it was available, it is unlikely that the final cost of compensation will reach the �1bn that the mortgage lenders once feared.