Mortgage prisoners launch legal action against lenders

Mortgage prisoners launch legal action against lenders

Borrowers trapped in their mortgages with high rates have launched legal action against the companies they hold responsible.

Specialist litigation law firm Harcus Parker has begun legal proceedings on behalf of more than 200,000 mortgage prisoners, with the core claim that the lenders had failed to treat borrowers fairly and set rates at a fair level.

The group legal action is looking to reclaim the difference between the high rates the borrowers have paid against if a "fair rate" had been charged.

Typically a lender's standard variable rate — which mortgage prisoners are "stuck" on — is about 5 per cent, while fixed rates have dropped to below 2 per cent for some borrowers this year.

According to Harcus Parker the difference between what mortgage prisoners are paying and possible rates in the market is about 2 to 3 per cent. This amounts to an 'over-payment' on a £100,000 interest-only policy over ten years of between £20,000 and £30,000.

Mortgage prisoners are those locked in their mortgage when they could potentially get a cheaper deal elsewhere.

This concerns predominantly consumers who took out a mortgage before the financial crisis but are now blocked from switching due to stricter lending rules, or because their loan was sold to inactive lenders.

Such consumers 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.

Many mortgage prisoners are former Northern Rock and Bradford & Bingley customers. Both lenders were wound down after the financial crisis and their mortgage books taken on by the government as part of a rescue package.

UK Asset Resolution was created in 2010 to manage the winding down of these businesses in an orderly way and became the holding company of the government owned NRAM (formerly Northern Rock) and B&B loan books.

Harcus Parker said a letter of claim had been sent by the clients to both Landmark Mortgages and NRAM.

NRAM is the leftover part of Northern Rock while Landmark Mortgages has been set up by US firm Cerberus, who has since bought the parts of the mortgage book from UKAR.

UKAR declined to comment while NRAM and Landmark (via Cerberus) have been approached for comment.

A HM Treasury spokesperson said: “We know that being unable to switch your mortgage can be stressful, particularly if you are meeting your repayments.

“That’s why we’ve worked with the Financial Conduct Authority to introduce new rules that remove barriers preventing some customers from accessing cheaper deals, and continue to work on this matter.”

The FCA shook up mortgage rules earlier this year to help mortgage prisoners switch to other, cheaper deals.

The new rules allow lenders to carry out 'modified affordability assessment’ for mortgage prisoners, providing they are up to date with their mortgage payments, do not want to borrow more money, and are looking to remortgage rather than move home.