Alternatively, mortgage prisoners may bring a claim for breach of contract. Such claims allege that lenders have continually acted in breach of both express and implied terms of the mortgage agreement, by failing to charge a fair rate of interest. The compensation sought under such claims seek the difference in the amount of interest actually paid, and the amount that would have been paid had a fair rate been charged.
In contrast to mis-selling claims, breach of contract claims are not brought against advisers but against the lender who charged the unfair rate of interest.
In 2019 Harcus Parker was approached by the UK Mortgage Prisoners group; a group established to campaign for fair treatment of mortgage prisoners, with a view to bringing group action proceedings through the courts.
Since that time some 4,000 mortgage prisoners have instructed the firm. The claims are primarily against: Whistletree (TSB), Heliodor (Topaz), Landmark, and NRAM Limited, each of which acquired portfolios of legacy Northern Rock mortgages following its nationalisation.
If such legal claims succeed, claimants might expect between £20,000 and £30,000 in compensation. Importantly, success in these claims may lead to improved practices around mortgage lending, including rate setting and fair treatment of customers.
What is a fair rate?
The fair treatment of mortgage prisoners underpinned the House of Commons debates about the proposed amendments, and has been a concern for advocates of the government’s handling of the nationalised banks.
It has been suggested by the government that fair treatment of borrowers is ensured by customer protections included in sale agreements when mortgage portfolios were sold.
One such protection was that the SVR charged should be in line with rates charged by active lenders. In practice, documents seen by Harcus Parker show that this protection states that the SVR was to be no more than the third highestSVR charged by the 15 largest mortgage lenders.
It is questionable whether inactive lenders setting their SVR in this way is fair. The claims being brought by Harcus Parker dispute that it is fair and the claims are investigating whether, in any event, this standard has been adhered to.
What else is being done for mortgage prisoners
Since the amendments were voted against, the UK Mortgage Prisoners group has begun lobbying for a moratorium on repossessions, which are on the rise since the expiry of the Covid-19 related payment holidays, until appropriate solutions have been implemented.
In addition, the government and the FCA have stated that a further review of mortgage prisoner data will be undertaken in the effort to find a "practical and proportionate" solution.
The FCA will also review the effectiveness of its new rules, which gave lenders the option to relax affordability rules for mortgage prisoners seeking to remortgage but did not mandate it, and will provide a report by November this year.