A group of ‘mortgage prisoners’ is launching a legal action against two nationalised banks which it says has left them trapped paying high interest rates and unable to move homes because of affordability constraints.
The UK Mortgage Prisoners Action Group claim they have been overcharged for years with high interest rates, but have been unable to switch to a cheaper deal.
An estimated 150,000 borrowers were trapped when Northern Rock and Bradford & Bingley were both nationalised at the height of the financial crisis in 2008/9.
Interest rates on their loans are many times more than the current low interest rates being offered to borrowers today. Neville Herron estimates he has paid an extra £32,000.
Letters of claim
Harkus Parker is the law firm handling the complaints made by the group and has just sent off letters of claim to UK Asset Resolutions which now looks after the affairs of the nationalised banks.
A statement from the firm said the loans had become inactive, but when their terms expired they were only offered standard variable rate replacements and were unable to look for cheaper deals because they could not meet current mortgage affordability rules.
The core claim is that the banks failed in their duty to treat their borrowers fairly by setting their interest rates at a fair level.
There are many different sizes of mortgage involved, but Harkus Parker has calculated that if the interest rates their clients their clients are being forced to pay are between 2% and 3% higher than what was considered fair the overpayment on a £100,000 mortgage over 10 years would be between £20,000 and £30,000.
Damon Parker, a partner of the law firm, said: “Among our claimants are people whose families have been broken apart, who have lost their businesses and say they have suffered sometimes life-threatening health problems because of the high cost of their mortgages.
“We say that our clients have been unfairly treated because they’re paying too much at a time when every other mortgage customer is paying unprecedented low rates.
“It’s not fair to charge people just because they’re collateral damage caught up in a nationalisation. Some people have got into terrible financial situations. Some people have been repossessed.
“We already have hundreds of case studies but we believe the number of those who have been affected by this could run into hundreds of thousands.”
The banks have three months to answer the letters of claim and if they do not do so it is likely Harkus Parker will start court proceedings.
UK Asset Resolution has passed no comment.
The FCA are currently investigating ways of loosening the affordability checks brought in by the Mortgage Market Review to enable the prisoners to take out new loans.
In March they proposed loosening the checks, but the changes will only be complete when other lenders agree to offer lower priced deals.