400,000 customers to gain compensation from Nationwide decision

The higher rate is currently 5.24 per cent, the lower is half a percentage point below this at 4.74 per cent.

The move which is expected to cost the lender £90 million, follows a ruling by the Financial Ombudsman relating to a Nationwide customer who was left paying a higher rate of interest than more recent customers who were offered a lower Standard Variable Rate (SVR) by the lender.

Phillip Williamson, chief executive of Nationwide, admitted he thought the decision by the Ombudsman was "unfair" but that after an unsuccessful appeal, the lender decided to "act in the best interests of its customers".

Williamson defended the lender’s position: "The introduction of our base mortgage rate was a strategic move to bring fairness to our borrowers. We believed that this strategy was already the fairest in the UK market and still do. But the Ombudsman has decided that, in one individual case, we did not go far enough.

"We introduced the BMR to give fairer pricing and value to our borrowers. More than half a million existing borrowers were immediately transferred to the BMR and we began to move all our borrowers to this rate, as existing special mortgage deals came to an end. Now, following the Ombudsman’s decision, we have decided to bring forward this plan."

A Halifax spokesperson said that the decision by Nationwide was its own prerogative. "There is no such thing as a free lunch though," said the spokesperson. "Millions of Nationwide’s savers will pay for today’s decision sooner or later."

In a separate ruling against the Halifax in January, the Financial Ombudsman ruled that it was wrong to keep some types of mortgage holders on higher rates while offering cheaper mortgages to other borrowers. The lender was ordered to compensate a customer who complained about paying Halifax’s old standard variable rate.

The spokesperson for Halifax, said that it had no plans to change its position after Nationwide’s move and would still look at each customer’s complaint on an individual and specific basis.

All existing Nationwide customers who have been paying the standard variable rate or a rate discounted from the SVR during part or all of the period 1 March 2001 to 31 March 2002 will be reimbursed automatically by a reduction in their mortgage balance. The reduction is based on the 0.50 per cent difference between interest charged at the lender’s SVR and interest charged at the BMR.

Williamson at Nationwide said that the process of reimbursing its customers would take time but that it hoped to be finished by June. Nationwide has also decided to remove all offers of discounted mortgages. "These rates were effectively being subsidised by long standing loyal customers paying a higher rate than those being offered to new customers," said Williamson. "The bank mortgage rate could be and was set at a lower rate than the standard variable rate because there was no longer any requirement to subsidise discounted deals for new customers."