Co-Operative Bank is bringing a legal challenge against a review of a customer’s past mortgage interest payments in the High Court today.
In a case that could set a precedent for 200,000 mortgage prisoners, the court will consider whether the Financial Ombudsman Service can investigate a complaint about the fairness of the interest rates that the lender charged customer Gwen Davies.
The case, which is being closely watched by other lenders and campaigners, will see the Co-Op Bank is trying to stop the ombudsman from investigating Davies’ case on the grounds that it is time-barred, according to UK regulatory rules on dispute resolution.
“This judicial review is about whether or not the events complained of are within the ombudsman’s jurisdiction and not on the merits of the underlying complaint,” a spokesperson told Bloomberg. “The bank is satisfied that the historical variations were applied fairly and in accordance with the terms and conditions of the mortgage contract.”
There are an estimated 200,000 mortgage prisoners in the UK, according to the Financial Conduct Authority.
The group comprises loans made to borrowers before the financial crisis but who are now deemed too risky to lend to, with large debts compounded by personal circumstances such as illness, job loss or divorce.
Many were customers of collapsed lenders Northern Rock and Bradford & Bingley, whose loans were sold by the UK government to hedge funds and private equity firms. Members of the group may have each paid £30,000 to £40,000 more than those who could shop around in the past decade, New City Agenda, a think tank, has calculated.
A parliamentary committee has cited details of the increased borrowing costs Davies faced, with the standard variable rate rising from 2.99% to 5.75% between 2009 and 2012.
The Bank of England’s base rate was 0.5% at that time, and many mortgage lenders offered deals at around 2% or 3%.
“The FCA and the ombudsman need to intervene to protect these customers,” said Seema Malhotra, an MP and co-chair of the parliamentary cross-party group on mortgage prisoners. Many “have serious health issues or financial problems.”
UK lawmakers and campaigners have been trying for years to push regulators and the government to require lenders to offer better rates to mortgage prisoner customers.
The FCA made limited changes to affordability rules in 2019 which allowed a few thousand borrowers to switch providers but didn’t change the situation of many people with expensive loans.
The ombudsman has considered other complaints from mortgage prisoners, some of which have led to confidential financial settlements, a person familiar with the matter told Bloomberg.
