Judgment in “Mortgage Prisoners” litigation against TSB

27/09/24

The Chancery Division has this week given judgment in a trial of preliminary issues in a claim brought by 392 former customers of Northern Rock, whose mortgages were transferred to the “Whistletree” brand of TSB Bank Plc (“TSB”) upon the collapse of Northern Rock and its nationalisation in the financial crisis. There are more than 2,000 further potential claimants who have entered into standstill agreements with TSB, as well as potential claims against three other lenders who hold former Northern Rock mortgages. 

The Claimants contend that they are “mortgage prisoners”. They held fixed rate or tracker products with Northern Rock at considerably lower rates than the Standard Variable Rate (“SVR”), but following changes to affordability requirements after the global financial crisis, they had great difficulty remortgaging elsewhere (and Northern Rock’s successor lenders did not offer them new mortgage products).

There were three preliminary issues considered at the trial.

The first was whether the express terms of the Claimant’s mortgage contracts required TSB to offer them an SVR which was the same as the rate(s) charged to TSB’s non-Whistletree customers. On this issue, the Court rejected the Claimants’ case.

The second was whether there was an implied term of the mortgage contracts, similar to that in the well-known case of Paragon Finance v Nash [2002] 1 WLR 94, requiring TSB to exercise its discretion to set and/or vary interest rates in a way which is not dishonest, for an improper purpose, capricious, arbitrary, or in a way in which no reasonable mortgagee acting reasonably would do. Although TSB had denied this implied term in its Defence, upon the start of the hearing TSB conceded that such a term fell to be implied, and this was approved by the Court.

The third issue concerned ss.140A-C of the Consumer Credit Act 1974. A substantial proportion of the Claimants had a “Together” mortgage, which combined a secured mortgage with an unsecured loan. The mortgage had the same interest rate as the loan, but this was conditional on the mortgage remaining in place (which inhibited redemptions). The Court had to consider the extent to which it could make orders under the “unfair relationship” provisions of the CCA in respect of the mortgage (which is not regulated under the CCA). It held that s.140A(5) CCA did not prevent the Court from considering, or making orders for repayment under the unsecured loan in respect of, unfairness generated by the secured mortgage. However, it held that it could not make orders for repayment of sums paid under the secured mortgage.

The judgment can be found here.