MORGTAGE borrowers trapped on expensive rates with defunct lenders could be offered compensation if a legal battle launched today wins its case.
Law firm Harcus Parker is taking group action on behalf of customers of former lenders Northern Rock and Bradford and Bingley.
Around 120,000 people were left trapped on expensive standard variable rates (SVRs) when the firms went bust during the financial crisis.
The problem is that owner Landmark isn’t allowed to offer new deals or remortgages to borrowers.
On top of this, new stricter mortgage affordability rules introduced in 2014 mean homeowners are struggling to switch elsewhere.
Harcus Parker says that in some cases people have been trapped paying over 5 per cent interest on their mortgages for the past 12 years.
The Sun spoke to one terminally ill Landmark customer last year who was struggling to keep up with her 4.79 per cent rate.
Homeowner Sharon Gray also told us how she’s stuck on a 4.84 per cent rate.
In comparison, the top rate for a two-year fix for someone with 60 per cent loan to value (LTV) is just 1.14 per cent.
Harcus Parker adds that some borrowers have been overcharged by as much as £20,000, while others have seen their homes repossessed.
The firm is now attempting to reclaim the difference between the interest rates people have paid, and what it deems to be a “fair rate” of around 2 per cent to 3 per cent.
It says it’s served notice of its claim today on behalf of Northern Rock (NRAM) borrowers and plans to issue proceedings in spring 2020.
The firm expects the case to take around 18 months and says claims against Bradford and Bingley, Mortgage Express and other firms will follow.
But this isn’t a class action case, so borrowers need to actively opt into the claim to be part of it.
Harcus Parker says it’s working on a no-win no-fee basis but be warned that it will take a 35 per cent cut of anything borrowers get back if it wins.
If you’re unsure of your options, it’s worth speaking to a free mortgage broker to begin with, such as London and Country or Trussle.
The action follows plans revealed by regulator, the Financial Conduct Authority, earlier this year to help trapped borrowers switch to cheaper deals from 2020.
But only customers who meet certain criteria, such as being up to date with payments, will be able to take advantage of these relaxed requirements.
Harcus Parker partner, Damon Parker said: “The claimants will say that these lenders set their interest rates at an unfairly high level and that in doing so they took advantage of borrowers and breached their obligations to treat customers fairly.
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“The claimants’ case is that this is particularly so in circumstances in which Northern Rock marketed aggressively to customers on the basis that they would never need to pay the SVR because there would always be a new deal available.”
UKAR, which was set-up by the government to manage NRAM, Bradford and Bingley, and Mortgage Express loans (although many of these have since been sold to Cerberus and rebranded as Landmark), declined to comment.
The Sun has contacted Cerberus.