Northern Rock ‘mortgage prisoners’ sue TSB

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About 2,500 former Northern Rock customers who complain they became “mortgage prisoners” after the UK lender collapsed will confront the bank that took on their loans, TSB, in court to demand compensation.

The High Court in London is due on Tuesday to hear a case brought against TSB by mortgage holders who argue they were exploited by the high street bank. They claim they were left trapped, paying well over market interest rates, after their loans were transferred from Northern Rock in the wake of its nationalisation at the beginning of the financial crisis.

The consumers in the TSB litigation — whose loans were grouped by the Sabadell-owned lender under its Whistletree brand after it acquired them in 2016 — are a subset of a larger group of homeowners whose lenders failed during the financial crisis and say they were subsequently locked into bad mortgage deals. They struggled to switch in part because stricter affordability rules came into force after the financial crisis.

Law firm Harcus Parker is bringing the group legal claim on behalf of about 2,500 customers who were transferred to TSB, one of several institutions that purchased former Northern Rock loans.

The average claim is estimated to be worth between £20,000 and £30,000, according to the law firm.

Harcus Parker claimed the TSB “took advantage of the situation” and charged the former Northern Rock customers an additional 2.3 percentage points above the bank’s standard variable mortgage rate.

The law firm claims TSB was required to charge its own standard variable rate, not a special one for Whistletree customers.

The proceedings on Tuesday will assess particular issues that are a crucial part of the case. They include whether TSB breached the terms of the claimants’ mortgage contracts by not charging them TSB’s standard variable rate.

TSB is contesting the claims. “Whistletree customers are not mortgage prisoners,” the bank said in a statement, adding that more than two-thirds of Whistletree customers had either moved to a new product or closed their mortgage with the brand.

TSB added that it “has always been committed to treating Whistletree customers fairly, does not believe the claim has merit and is defending it vigorously”.

In its defence filed with the court, TSB said Whistletree mortgages were higher risk than others across its book. A higher proportion of the former Northern Rock customers were in arrears or negative equity, or had their property repossessed.

However, Harcus Parker claimed that the mortgages transferred from Northern Rock had been more profitable to TSB than the rest of its portfolio. The bank had purchased the loans to “plug a gap” in its profitability, knowing the customers would struggle to switch, Matthew Patching, partner at Harcus Parker, claimed.

He said the former Northern Rock customers had been kept on rates of about 5 per cent even after interest rates plunged following the financial crisis and some were now being charged up to 10 per cent.

“It’s not just about the money,” Patching added. “Our clients feel very strongly that there should be recognition that they’ve suffered a terrible injustice.”