The High Court has ruled that a high street bank did not breach so called ‘mortgage prisoner’ contracts after it was alleged by claimants that homeowner’s contracts were ‘violated’.
In a preliminary ruling that took place in July, bank TSB was placed under scrutiny alongside its subsidiary Whistletree, after 400 former Northern Rock claimants argued that they were ‘trapped’ into shelling out a higher interest rate on their mortgages.
The accusation came after TSB’s offshoot Whistletree purchased £3.3bn worth of mortgages from Northern Rock eight years ago, leading the former customers to condemn Whistletree after paying a standard variable interest rate that was 2.29 per cent higher than TSB’s comparable rate.
The class action suit claims these homeowners paid an average of £30,000 in extra interest payments, in a test case valued at up to £75m if 2,000 other homeowners join the lawsuit. The claimants say they should have been charged the TSB standard variable rate instead.
Judge Thompsell, who presided over the case, said that TSB had not broken its agreement with the mortgage holders.
He said: “The Whistletree standard variable rate should be regarded as the continuation of the original standard variable rate originally operated by Northern Rock, and not as a new rate.”
A TSB spokesperson said: “We welcome the court’s decision today, which recognises that TSB acted in accordance with the terms of Whistletree mortgage contracts.”
Law firm Harcus Parker represented the mortgage prisoner claimants who alleged that TSB and Whistletree had breached its contracts.
The Financial Times reported that the group UK Mortgage Prisoners urged its members – who backs the disgruntled claimants- not to be “unduly disheartened” by the result, pointing out this was a judgement on three preliminary questions and not the trail of the group claim against TSB and Whistletree.
“This is by no means the end of legal action and there are still very significant broader issues beyond these preliminary questions yet to be determined at a full hearing which will hopefully take place as early as possible,” the group argued.
A meeting will be held between the action group and the UK Treasury on October 1 to consider solutions the Labour party could introduce in relation to residential mortgage reform and the regulations surrounding potential reform.
The FT wrote that Lead campaigner for UK Mortgage Prisoners Rachel Neale said: “We will not rest until action is taken by government and regulator.
“It is abhorrent that our members continue to suffer injustice 16 years on from the global financial crisis due to a lack of setting adequate protections in place upon the sales and transfers of our mortgages.
“No residential mortgage should sit in the clutches of profiteering debt collectors who offer no mortgage products.”
The Mortgage Financial Gazette reported that prior to 2008 Northern Rock offered a mortgage package that consisted of a mortgage loan alongside an unsecured loan offered at the same interest rate, with a condition that the loan was kept in existence by the borrower.
By taking both loans, some borrowers were able to borrow more than the assessed value of the property.
After an introductory period, the fixed rate would move up to a higher floating rate, the Standard Variable Rate.
When TSB acquired a portfolio of Northern Rock mortgages in 2016 under its Whistletree brand, after the Bank of England bailed out the Northern bank – the SVR it applied to the mortgages was 4.79 per cent which was 4.29 per cent above the Bank of England’s base rate at the time.
Since then, TSB has changed this variable rate from time to time, both up and down and, in each case, consistently with changes to the bank’s base rate.
The ruling in the High Court explained that the Whistletree’s SVR should be regarded as the continuation of the original SVR originally operated by Northern Rock, and not a new rate.
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