Northern Rock ‘mortgage prisoners’ sue TSB subsidiary that bought their loans

A group of Northern Rock customers who claim they became “mortgage prisoners” after the lender’s collapse are to go to court on Tuesday to try to get compensation from the bank that bought their loans.

About 2,500 borrowers whose home loans were sold to TSB’s subsidiary Whistletree are involved in a case over what they say are inflated interest rates on their debt.

Rather than being put on TSB’s normal standard variable rate (SVR) when they were transferred, they have been charged a separate rate, which is higher. While the TSB rate now stands at 7.25%, Whistletree’s equivalent is at 9.54%.

The group of current and former Whistletree borrowers are part of a wider cohort of about 47,000 households who had loans with Northern Rock and Bradford & Bingley until the banks failed in the 2008 financial crisis.

Many had taken out interest-only mortgages, some had self-certificated their income, rather than having to prove it, and some took on loans of more than 100% loan to value (LTV). These circumstances have meant that some have been unable to switch to a new, cheaper deal, meaning they came to be known as “mortgage prisoners”.

About 27,000 mortgage holders were transferred to Whistletree in 2016. Since then, more than two-thirds of Whistletree customers have switched to a different deal or closed their mortgage, but those on its SVR have paid more than if they were on TSB’s equivalent variable rate.

Olivia Selley, senior associate at the law firm taking the action, Harcus Parker, said that this meant these borrowers may have paid £15,000-£30,000 more than had they been on the better rate.

She said the court proceedings, expected to take four days, would examine whether the decision to put the borrowers on a separate SVR had breached the contract that they had with Northern Rock and whether there was an implied term that rates should not be set unfairly or capriciously.

The court’s decision, expected in the autumn, will set the terms for further action by the borrowers.

Rachel Neale, lead campaigner for the UK Mortgage Prisoners Action Group, said: “After six years of tough campaigning for justice, UK Mortgage Prisoners action group hope that Harcus Parker solicitors are successful in this aspect of justice for our members.

“Additionally, we call upon government to right the broader wrongs that only legislative reform can bring about for mortgage prisoners in order to right the wrongs government knowingly enabled.”

TSB said that, since 2017, it had made new deals available to Whistletree borrowers at the same price as those available through the main bank, and that it now allowed those who were behind on repayments to switch to a better rate.

A spokesperson said: “Whistletree customers are not mortgage prisoners. Since we took over the management of these mortgages, over two-thirds of Whistletree customers have either moved to a new mortgage or closed their mortgage with Whistletree. We remind customers they can switch at least annually, and this is displayed prominently on the Whistletree website.”

Commenting on the court action, he said: “This is a hearing for the court to determine some specific issues that have been raised as part of Harcus Parker’s legal action relating to Whistletree mortgage terms and conditions, in advance of any final trial. TSB has always been committed to treating Whistletree customers fairly, does not believe the claim has merit and is defending it vigorously.”