Abbey National is facing compensation claims after an Ombudsman ruled that its mortgage pricing policy was unfair.

The bank has been told it was wrong to prevent existing customers switching to its new cheaper tracker rate.

Abbey National yesterday withdrew the new rate, which had been introduced in August 2001.

And the bank said it would pay only those claims lodged by customers before the Financial Ombudsman's ruling.

Millions of pounds compensation?

The mortgage in question was the classic base rate tracker which was linked to the Bank of England base rate.

This was cheaper than the Abbey National standard variable rate, but the bank would not allow existing mortgage customers to switch to the new account without "reviewing or changing their mortgage".

Abbey National told BBC News Online that it was "disappointed" by the ruling but had accepted it "in the interests of moving on".

The bank denied reports that the claims would amount to millions of pounds in compensation but gave no clear indication of the cost, saying only that it was "not material".

Abbey National withdrew the new classic base rate tracker mortgage on Thursday.

It said it would pay customers who had lodged a complaint the difference in interest between the two rates from the date their complaint was lodged.

Tide is turning

Rival banks have been forced to pay out substantial compensation to clients after customer complaints.

The building society group Nationwide has paid more than �90m compensation to customers after the watchdog said that its pricing policy was unfair.

Halifax also lost an appeal on its mortgage pricing earlier this year, and has so far paid �12m in compensation.

However, Halifax and Cheltenham & Gloucester recently won cases at the ombudsman.

Experts now believe claimants have little chance of winning cases in the future, unless they can prove they applied for the lower standard variable rate, or complained before it was withdrawn.

Difficult year for Abbey

Earlier this year, Abbey National unveiled a steep slump in profits, only days after its chief executive Ian Harley resigned abruptly.

The bank said losses on asset disposals and bad loans, such as those to bankrupt US group Enron, had hit profits.

Shares in the group have fallen sharply since a profit warning earlier this year, and lost another 2p to 735p in early trade. This is a far cry from their 12 month peak of 1125p less than six months ago.