The ME Group — which uses its tech system to create reports and analysis about mortgage products — predicted that banks and brokers could be on the hook for at least £3.6bn in compensation for mis-sold mortgages.
The firm essentially works as a claims-management technology business by creating reports for consumers which explain the likelihood a mortgage was mis-sold and the potential compensation due.
Through its work, the ME Group carried out assessments on mortgages for more than 43,000 UK households and found that more than 18,000 of them could be due compensation of more than £20,000 — adding up to £3.6bn of potentially owed cash.
According to ME Group, these customers were either mis-sold mortgages by brokers revisiting their accounts and 'churning' their business to an extent they are now over-indebted or have been overcharged as a result of mortgage lender practice during the 10-year period after the global financial crash.
In its response to the All Party Parliamentary Group’s inquiry on mortgage prisoners, the group urged politicians to move the issue up the agenda.
It specified a distinction between consumers whose mortgages were mis-sold — and therefore require compensation — and mortgage prisoners who were moved to new providers in loan book sales who are now trapped paying high rates.
According to ME Group, to help the former the government does not need to pass legislation or change regulation but needs to put the onus on regulators to tackle the issue head on.
The group's chief executive, Rob Cooper, said: "While the focus for this inquiry is the 150,000 estimated mortgage prisoners, we believe a significant proportion have also been either mis-sold their mortgage or have been overcharged, although many people who fall into these categories do not even know that they have been mis-sold."
Mr Cooper said once such consumers had been identified, they should be able to claim for compensation via the Financial Services Compensation Scheme and the Financial Ombudsman Service.
He added: "The government must encourage regulatory authorities to move the mortgage mis-selling issue up their agenda, and to build internal capability to examine these types of claim and make settlement decisions much more quickly than is currently the case.
"There are families across Britain who face financial trouble as a direct result of poorly designed financial services, yet awareness among the most financially vulnerable of the unfairness and overcharging, and a decline in the inclination to complain, means they fail to receive the remediation they deserve."
But Shaun Church, director of Private Finance, said he struggled to see how such a large percentage of mortgages would have been mis-sold.
He said: "After the crash, the market clamped up completely and the idea mortgages were being 'over-sold' at this time doesn't make sense. High loan-to-value and loan-to-income borrowing stopped and lenders became very strict.
"Alongside this, post the Mortgage Market Review in 2014 mortgages have been sold within a framework set by the regulator which most agree works well."
Mr Church went on to say that even before the crash, it was not necessarily the case that mortgages were mis-sold by brokers for their own personal gain.
He said: "If we tried to sell someone £110,000 rather than the £100,000 they actually needed, the rise in our commission would be so small it would not be worth it.
"Also, in regards to 'churning the book', going back to a client after two years to make sure they don't go onto higher rates is good practice and good advice — not 'churning' for personal gain."
Robert Sinclair, chief executive of the Association for Mortgage Intermediaries, said if ME Group had such valid claims the group should take them to the Ombudsman service, describing the claims system in the financial world as "perfectly adequate" to deal with it.
He said: "Why are the group lobbying MPs when the Fos is well placed to deal with these things?"
The APPG for mortgage prisons was launched earlier this year (May 14) to rally support for borrowers trapped by changes to lending rules and the “scandal” of government loan selling.
Such consumers are predominantly borrowers who took out a mortgage before the financial crisis but are now blocked from switching to better rates due to changes in lending practices.
They are often told by lenders they cannot afford the new deal under the lending rules despite the new policy having cheaper monthly payments than their existing one and the borrower having continually paid off their monthly bill and stayed out of arrears.
In cases such as Northern Rock old loans taken on by the government as part of a rescue package after the financial crisis have since been sold on to inactive lenders or private equity funds.
In April the government sold NRAM (previously Northern Rock) mortgages to inactive lender Citi, but the Treasury stated it had been unable to find an active lender for the deal.
The issue prompted an MP to present a motion in the House of Commons to force lenders to treat such borrowers as "grandfathered" as a first step towards freeing the 200,000 mortgage prisoners.
Just this morning (July 22), reports circulated that Metro Bank would sell a £500m slice of its loan book to inactive and unregulated lender Cerberus.
imogen.tew@ft.com
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