TSB faces court over ‘excessive’ mortgage rates

Mortgage customers accuse lender of unfairly charging them higher rates.

One of the nation’s major banks is facing the prospect of heading to court over accusations that it has been charging borrowers “excessively high” interest rates.

Back in 2016 TSB bought a package of old Northern Rock mortgages from the Government.

Northern Rock of course went bust in the financial crisis, with the Government taking over its mortgages, selling on batches of them to regular mortgage lenders.

TSB then ran these mortgages under its Whistletree brand.

Many of the borrowers included in these deals are effectively mortgage prisoners.

Since the financial crisis, tougher affordability rules have been introduced, aimed at making sure lenders only offer mortgages to people who can definitely afford the repayments.

This has made it tough for some existing borrowers to remortgage to new deals ‒ even if they have an impeccable repayment record.

As a result, the borrowers are trapped on their lender’s standard variable rate (SVR), a rate which can be increased (or decreased) at any time, irrespective of what is happening with Base Rate.

Blowing the whistle on Whistletree

In this case, the borrowers were put on a specific Whistletree SVR, separate from the TSB SVR.

What’s more, the Whistletree SVR was more expensive ‒ according to the lawyers behind the case, it was around double the regular TSB SVR.

That obviously translates into much higher mortgage repayments.

Harcus Parker, the legal firm, is leading a claim to retrieve £50,000 each in overpaid interest. So far, 200 borrowers have joined the claim, but the firm reckons that as many as 27,000 homeowners could join.

We should stress that TSB has refuted the suggestions, noting that since it had acquired the mortgage book borrowers could move to cheaper deals, which would not have been available to them while the mortgages were being managed by the Government.

This of course relies on those borrowers passing the relevant affordability tests, which is far from a given.

Helping mortgage prisoners

These borrowers are certainly not the only ones to find themselves trapped on costly deals, with little chance of moving elsewhere, over the last few years.

The good news for the TSB customers is that at least their mortgage was purchased by an actual lender.

Plenty of borrowers found their deals purchased by asset managers, making it rather tougher to find an available remortgage product.

A study by the Financial Conduct Authority (FCA), the regulator, last year found that around 47,000 mortgage prisoners cannot readily switch deals and yet are completely up to date with their repayments.

While it has encouraged lenders to be more open to taking these borrowers on, it remains open to debate how effective that has been.

The fact that the Bank of England has now scrapped the regular affordability requirements may make this a little easier.

loveMONEY commentary: an unfair situation

Nonetheless, it’s pretty incredible that this remains an issue for thousands of borrowers.

The authorities have known full well that many borrowers ‒ with perfect repayment records ‒ have been trapped on these costly deals, through no fault of their own, for years.

And the truth is that there simply hasn’t been the urgency required from those at the top of the mortgage industry to rectify the situation.

That sort of approach was barely justifiable when Base Rate was low, but now that we have seen a succession of increases ‒ coupled with the general cost of living crisis ‒ the pressure has to be on those running the mortgage sector to find a solution.

The regulator and the lenders themselves have had plenty of time to get to grips with the issues at hand ‒ Northern Rock went bust so long ago, I had hair and fewer chins.

And while it’s right that lenders were forced to be more responsible with their lending in the aftermath of the crisis, it always struck me as bizarre that this should be to the detriment of existing borrowers who keep up with their repayments.

If a borrower is able to keep up with their repayments at, say 4%, and has never missed a payment, it is nothing short of perverse to say that you cannot move them to a cheaper deal based on affordability tests.

I think the current situation is entirely unfair ‒ we have to hope that this court action gives all lenders with borrowers in this position the encouragement they need to find a more suitable solution.