Thousands of Homeowners in the UK Are Suing Banks, And Here’s Why!

• The financial crisis of the early 2000s left many mortgage borrowers in the UK with interest rates that were much higher than they had initially agreed to pay, thanks to the nationalization of their lenders.
• As a result, these mortgage borrowers are taking legal action with the claim that these banks have left them in a terrible financial situation.

Notable lenders include Northern Rock as well as Bradford & Bingley, which collapsed as a result of the financial crisis and consequently found investors to buy off their mortgage portfolios.

This transfer caused an estimated 150,000 homeowners with outstanding mortgage obligations to pay much more than they otherwise would’ve needed to pay because they no longer had the option of shifting to a deal that was cheaper.

Now, the UK Mortgage Prisoner Action Group is pushing for repayment of all the extra interest that has been paid by these homeowners. Most of the cases belong to those people who took out mortgage loans towards the end of the 2000s from either Northern Rock or Bradford & Bingley banks. According to the claim, clients have been paying interest at a rate greater than 5% over the previous 12 years.

Disrupting Personal Lives

According to Neville Herron, a mortgage borrower, he has paid out an additional £32,000 on a house loan he took out with Northern Rock in the year 2003.

Herron’s loan was transferred to an asset management company called Northern Rock Asset Management (NRAM), which comes under UK Asset Resolution’s ownership.

According to him, after the expiration of the original mortgage deal, instead of being offered a fixed-rate mortgage, he was instead charged a standard variable interest rate.

Herron has commented that this unfair development has disturbed his marital life by placing a great strain on his finances. Even with two jobs, Herron finds it difficult to make ends meet.

He was disallowed from switching to a cheaper loan option by the Financial Conduct Authority (FCA), as he could not fulfill its affordability criteria due to the negative equity associated with the mortgage loan.

Mortgage Prisoners

Mortgage lending rules in the UK were tightened after the FCA enacted regulations as an aftermath of the financial crisis. The new lending criteria placed stringent affordability checks that made sure the borrower was able to afford the repayment of the loan, such as thorough credit checks.

However, these checks also applied to borrowers with existing loans, making it impossible for many to secure cheaper mortgage deals and instead of forcing them to pay the higher standard variable interest rates.

Since the base interest rate was cut down by the Bank of England to 0.5%, many cheap mortgage deals became available in the market. However, existing mortgage borrowers were unable to make the shift and hence continued paying the higher interest.

A Drawback of Nationalization

In Herron’s case, his mortgage was finally sold to Whistletree, which comes under the ownership of TSB Bank, by NRAM. However, this switch ended up saving him only £40 per month.

According to Damon Parker, who works for the law firm Harcus Parker which is proceeding the legal action, mortgage lenders must give loans at a fair rate to their customers as a duty. Since the nationalization, rates have dropped to an unprecedented low, and mortgage lenders must offer adjusted rates to customers accordingly.

Some changes have been recommended by the FCA, including lenders allowing borrowers, who have made timely repayments so far, to enjoy relaxed rules as part of their affordability assessment.