Tens of thousands of mortgage prisoners forced to pay “excessively high” interest rates for years in the wake of the financial crash were failed by the Tory government, a former minister has told
The i Paper
.
Around 160,000 homeowners are stuck repaying thousands of pounds extra each year after being left stranded with ‘closed-book’ lenders who took on their mortgages when firms such as Northern Rock and Lehman Brothers collapsed in 2007 and 2008.
Mortgage prisoners cannot switch
mortgages
because their provider is no longer an active lender, meaning they became trapped on higher standard variable interest rates (SVRs) after their fixed-term deals expired.
Stricken borrowers have campaigned for years for compensation and government intervention, but were dealt a major blow in 2021 when MPs voted against a cap on interest rates for mortgage prisoners.
A group of 2,500 former Northern Rock customers are now taking legal action against TSB subsidiary Whistletree, a closed-book lender, over the rates they were charged in a case which could result in a compensation bill of more than £4 billion.
Conservative shadow housing secretary Kevin Hollinrake, who voted against the interest rate cap in 2021, said he wishes he had defied party whips and that the government let mortgage prisoners down.
He said: “I think it’s wrong that [mortgage prisoners] don’t pay a fair rate on their mortgage. It’s clearly extracting value from an investment with the people who are caught in the middle.
“I think [voting against the Government] would have been the right thing to do.”
In 2021 the House of Lords passed an amendment to the Financial Services Act to cap rates for mortgage prisoners.
After Conservative government whips instructed the party’s MPs to vote against the amendment in the House of Commons, chancellor Rishi Sunak promised to look at “workable solutions” for mortgage prisoners.
The Treasury argued the proposed SVR cap for one group of homeowners would be “unfair” on other borrowers.
Hollinrake said he was assured by the Treasury that a solution would be found.
“I was probably a little bit naive at the time, but we were given assurances – ‘don’t worry, we’ll find a solution’… but in the face of any other workable solution [capping the rates mortgage prisoners were charged] was the best solution on the table.”
A legal case brought by about 2,500 former Northern Rock mortgage customers, whose home loans were sold to Whistletree after the bank went bust, is expected to proceed to a full trial at the High Court later this year.
It could lead to an avalanche of similar claims if the court rules in their favour. London law firm Harcus Parker, which is representing the 2,500 homeowners, estimates the average compensation would be around £25,000 – meaning a total compensation bill for mortgage prisoners could top £4 billion.
The i Paper
has spoken to dozens of mortgage prisoners, many of whom are currently stuck with interest rates above 8 per cent.
Spencer Shackleton, 56, is a former Northern Rock mortgage customer whose loan was sold by the UK Government to a private equity firm called Cerberus Capital in 2016.
Today Spencer is struggling on an interest-only variable rate of around 9 per cent and faces losing his home in Preston, Lancashire, at the end of his mortgage term in March 2030.
“It’s like being told the day I’ll die; nothing can change it,” Spencer told
The i Paper
.
Rachel Neale, a mortgage prisoner and former Northern Rock customer who leads campaign group Mortgage Prisoners UK, says she is hearing from 30 to 40 people a day who are having their homes repossessed by ‘closed book’ lenders.
She said: “After 2008, the government bailed out the banks, but it didn’t bother to help the people who became stuck with then inactive lenders. These companies can cause tremendous stress by being completely unreasonable.”
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Olivia Selley, senior associate at Harcus Parker, said hundreds of thousands of homeowners have been trapped on “excessively high” interest rates, adding: “The obvious intention of these institutions is to profit from mortgage holders who they know cannot go elsewhere.”
TSB says around two-thirds of the 27,000 mortgage holders who transferred to Whistletree in 2016 have been able to switch to a new deal or close their mortgage.
However, those who have stayed with Whistletree have been charged at a higher rate than regular TSB customers.
Currently, Whistletree’s SVR is 8.79 per cent, compared with 6.50 per cent for TSB customers. On the average UK mortgage of £184,000 that would lead to a monthly bill of £1,517 for Whistletree customers, almost £300 a month higher than TSB.
Harcus Parker alleges its claimants’ contracts were breached because of an implied term in all mortgage contracts that the borrower must be treated “fairly” by their lender.
A preliminary hearing last September ruled that TSB had not violated the “express terms” of its mortgage deals, but further issues including whether it had broken “implied” terms look set to progress to a full trial.
It comes amid calls from the House of Lords for a public inquiry into the plight of mortgage prisoners.
Liberal Democrat peer Lord Sharkey has introduced the Mortgage Prisoners Public Inquiry Bill to the Lords, saying urgent action is needed to prevent widespread repossessions.
He said: “Mortgage prisoners need urgent action from the Government and the Financial Conduct Authority (FCA) to enable them to access fair interest rates.
“Alongside this action, a public inquiry would help the Government understand which decisions caused serious harm to mortgage prisoners.”
Former SNP MP Martin Docherty-Hughes, who has campaigned on behalf of mortgage prisoners in Parliament, said: “It is a manipulation of the mortgage market to try and maintain these closed books.”
Ms Selley said that if it is successful in its case against TSB, it will look to launch similar cases against other closed-book lenders.
TSB has denied Whistletree customers are mortgage prisoners, adding: “TSB has always been committed to treating Whistletree customers fairly and does not believe the claim has merit”.
An FCA spokesperson said: “We have done all that we can within our powers to ensure there are no regulatory barriers for any borrowers to switch to a new lender, but we cannot force a firm to lend to borrowers outside of their risk appetite.”
The Labour Government has said it will “work with regulators and the industry to ensure this issue is properly addressed”.
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The Big Mortgage Time Bomb, presented by The i Paper’s Housing Correspondent Vicky Spratt, will air on BBC Radio 4 on Sunday at 1.30pm. You can listen
here
.