400,000 to get home loan cut

About 400,000 homeowners won reduced mortgages today - and as many as one million could eventually benefit.

Nationwide building society is to cut repayments for borrowers charged too much for mortgages under controversial arrangements that saw two rates in place at once.

For its affected 400,000 property owners the deal will mean, in addition to the reduced mortgage rate, compensation for past overcharging worth around £500 for those with a £100,000 mortgage.

Nationwide will spend £90million offering its disadvantaged customers a mortgage holiday or the chance to reduce the term of their loan under the compensation scheme.

Other big lenders in a similar position include Halifax, HSBC and Abbey National - who will now be under intense pressure to follow suit. The society will be writing to all those affected by the decision within the next five weeks.

The move follows a ruling by the financial services ombudsman in favour of a customer who complained he had been unfairly treated. It comes after the society reduced its borrowing rate for most customers last March but failed to do so for all. Those left on the old rate of 5.24 per cent and excluded from the new 4.74 per cent rate are going to be compensated with the deal dating back to the beginning of last March. Customers affected will also pay less for their mortgages in future.

The ombudsman recently ruled in favour of a Halifax customer who lodged a similiar complaint. Halifax chose to ditch its lower lending rate and offer all customers the higher rate instead. The bank may now come under pressure from aggrieved customers comparing their treatment with that of Nationwide borrowers.

Officially, the ombudsman can only make decisions on a case-by-case basis, so Nationwide could have asked all customers who felt badly treated to make their complaints individually.

Today chief executive Philip Williamson said: "Unlike some of our competitors we do not believe it is right to force borrowers in a similar position to go to the ombudsman."

Mortgages have come down to historically low levels as the Bank of England has cut interest rates over the past year. The market has become intensely competitive but some borrowers are still paying over the odds.

The ombudsman recently ruled against Abbey National, which is understood still to be considering how to respond. A ruling was made against HSBC last year and it offered compensation to some customers.

? Fears of higher interest rates evaporated today after a shock fall in high street spending for the second month in a row.

Official figures revealed that retail sales volumes fell by 0.3per cent during January, defying expectations of a 0.6per cent jump. Sales for December were revised down to show a fall of 0.4per cent against an original 0.3per cent drop, despite expectations of an upward revision.

Fears of interest rate rise recede
City & Business
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