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ombudsman news

issue 9

September 2001

dual variable mortgage rates

As we write this edition of ombudsman news (mid-September) this is fast becoming a hot topic, featuring almost daily in the national press. It is too soon for us to comment fully on our approach, since cases are still under consideration. However, in view of some of the speculation and misunderstanding about where we are up to so far on this issue, we hope this note will be helpful.


Over the past year, several lenders have introduced lower variable mortgage rates for new borrowers. Most of their existing variable-rate borrowers have been transferred to the lower rate, or can apply to transfer to it. But the lenders have kept their previous, higher, variable mortgage rates for some existing borrowers - mainly those with discounted-rate or capped-rate deals. These borrowers are told they must remain tied to the higher rate until the discounted or capped rate comes to an end. what has happened so far- We have received a number of complaints about several different lenders. Some are still under investigation but in cases involving two of the lenders, one of our adjudicators has reached the preliminary conclusion that the borrowers were entitled to have their rates linked to the lower variable rate.

It is important to note that:

  • For both lenders, the preliminary outcome of the cases turned on the interpretation of the borrowers' individual mortgage contracts - not on the principle of lenders having dual variable mortgage rates. Was the rate in those contracts linked to the higher or the lower rate-
  • Both lenders have appealed against the adjudicator's preliminary conclusions. The lenders and borrowers will be able to submit additional evidence and arguments and the principal ombudsman will then review the cases. Until the principal ombudsman reaches his decision, we cannot say any more.

We hope to be able to comment more fully in the next banking and loans edition of ombudsman news, in three months' time.

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.