Boutique litigation law firm Harcus Parker has begun legal proceedings on behalf of so-called ‘mortgage prisoners’ who have been trapped paying more than 5% interest on their mortgages for the past 12 years, at a time when most others have enjoyed all-time low rates.
It is an opt-in action with a class of up to 200,000 people, and the City firm is acting under a damages-based agreement (DBA) under which it takes 35% of any compensation.
The claimants took out their mortgages usually with Northern Rock, Bradford & Bingley or its brand Mortgage Express, which were taken into public ownership after the financial crash.
They then became inactive or ‘zombie’ lenders, or their mortgage books were sold to other such companies, including inactive subsidiaries of TSB and the Co-operative Bank. This meant that when borrowers came to the end of their fixed-term mortgages, they were not offered any new deals and instead placed on a high standard variable rate.
Further, under strict new lending criteria put in place after the crash, these borrowers were usually unable to remortgage with other lenders – they were actually deemed too poor to make the repayments, even though the amount was less than they were paying at the time and even if they were up-to-date with their repayments.
By way of illustration, if the difference between the rates charged and a fair rate was between 2% and 3%, then the overpayment of interest on a £100,000 interest-only mortgage over 10 years has been between £20,000 and £30,000.
The solicitors said it was impossible at this stage to put a figure on the value of the claim, but it was “likely to run into many millions of pounds”.
Harcus Parker has been instructed by the UK Mortgage Prisoner Action Group. The core claim is that lenders were required to treat the mortgage prisoners fairly, and to set their rates at a fair level.
Since a Panorama documentary on the issue last year, political pressure has begun to build but while the Financial Conduct Authority and government may introduce changes to help borrowers escape their trap and avoid a recurrence, Harcus Parker said this legal action was the only route to redress for those who have already lost out.
Managing partner Damon Parker said: “Our clients are regular, hard-working people who have done nothing wrong. Nevertheless, they have been unfairly treated and stigmatised by the failings of the banking system.”
“Many of our clients have told us that, before they joined our group, they thought they were alone. Many have felt ashamed about being in financial hardship and of the impact it has had on their families. By bringing a claim as part of a group, they are benefiting from strength in numbers.”
Rachel Neale, who chairs the action group committee, said: “This situation has affected my family severely, and made me want to campaign on the issue and organise the group.
“I have spent time with the All-Party Parliamentary Groups on Mortgage Prisoners and on Fair Business Banking, and have tried to meet decision-makers at the major lenders in order to try to change their attitude towards people in our position. I have a particular interest in the effect of financial problems on mental health.
“By bringing this litigation, I naturally want to help to ensure that we all achieve financial recompense, but I also want to highlight the issues so that others are not affected in the same in future.”
According to the litigation’s website, the DBA provides that Harcus Parker will be paid 35% of each litigant’s damages, plus a proportionate share of the money it spends on “third party services” and after-the-event insurance.