Sarenco,
The Financial Services Ombudsman in the UK also explains the following background as a reason why it took action against English Banks in relation to having two different svr mortgage rates, one for new customers and one for existing customers:
"The single variable mortgage rate was seldom linked directly to any external benchmark. So the lender was in a much more powerful position than the borrower, because the lender could vary the interest rate from time to time.
So why did borrowers enter into such an apparently one-sided bargain- The one-sidedness was mitigated, to a very limited extent, by the Unfair Terms in Consumer Contracts Regulations and the Consumer Credit Act. But many borrowers know little or nothing of these.
The main reason, as lenders well knew, was because borrowers had a legitimate expectation that their lender intended to retain its customer base in a competitive market, and would set its available going rate for no-frills mortgages accordingly.
It would defeat that legitimate expectation if the standard variable rate ceased to be one where the lender competed in order to retain its existing borrowers. That would be especially important where existing borrowers were tied-in and had to pay an early repayment charge to escape."
Food for thought, from a Governmental point of view, in light of the recent meetings of Minister Noonan with the six main banks! Time to wave this BIG STICK at the banks.