It is believed that this decision could affect more than half a million borrowers whose mortgages are linked to its old standard variable rate, and it could have ramifications for other lenders, such as Nationwide, who are also awaiting rulings.
The lender has been ordered to compensate the customers who have complained, and the total cost to the Halifax could run into tens of millions of pounds.
The problem started last year when Halifax started a price war among high street banks by offering cheaper loans to new borrowers, while keeping existing borrowers on loans based on a higher standard variable rate (SVR).
As a consequence a number of customers complained to the Financial Ombudsman. A Mr and Mrs Wright complained that their capped rate mortgage was linked to a higher base rate and the Ombudsman has now ordered the Halifax to compensate the couple.
The Halifax defended its policy and claimed that the decision related to a ‘very specific’ case, and did not mean it could not operate two base rates. However, from 1 February the cheaper variable rate will no longer be offered to new customers and the higher variable rate (currently 5.75 per cent) will be the lender’s only SVR.
The lender announced that it will be offering both new and existing customers a new mortgage range that includes tracker and fixed rate products.
The tracker mortgage will track the Bank of England base rate at one per cent over base until 31 December 2005 when it reverts to the sole SVR. This will generate the same initial pay rate as the now defunct lower base rate.
David Bitner, mortgage technical manager at Bradford & Bingley’s The MarketPlace, said: "Variable rate two could end up costing Halifax millions of pounds, but if they had set up this variable rate tracker in the first place they would probably not have gone through this."
The Halifax said that there will be no change for any existing borrowers because of the Ombudsman's decision, and expects compensation to run to thousands not millions of pounds.
Phil Jenks, head of mortgages at Halifax, said: "Our strategy remains the same. The Halifax will continue to drive down the differential between new and existing customers because it is right for the customer and right for our business."
