TSB Bank is set to face legal action today worth up to £800m, brought by customers who claim they were locked into mortgages with “excessively high” interest rates. 

The legal action will see approximately 200 homeowners whose mortgages have been administered by TSB’s Whistletree brand issue claims for around £50,000 each in overpaid interest. 

Today marks six years since TSB bought £3.3bn mortgages from Northern Rock.

Harcus Parker, which is the law firm bringing the case in the High Court, says that up to 27,000 people could ultimately join the Whistletree claims litigation.

Since TSB bought the loans, it is said to have charged its Whistletree customers almost double the rates charged to its other customers.

Until recently, TSB is also said to have refused to allow these ‘mortgage prisoners’ to access ordinary TSB fixed-rate deals on the same basis as its other customers.

Commenting on the case, Harcus Parker senior associate Matthew Patching says: “Our clients have been treated terribly by TSB: they have been charged interest on their mortgages at rates significantly higher than those charged to other similar customers at the same bank.”

“This has had a real and devastating impact on the lives of homeowners who, other than happening to take out a mortgage with Northern Rock prior to the global financial crisis, are often identical to large numbers of TSB’s other customers.”

Harcus Parker says many of these borrowers have unblemished repayment histories but have been unable to move to another lender because they would not qualify under new, stricter affordability requirements imposed by regulators.   

In a letter seen by Harcus Parker, a homeowner who had requested to switch to a more competitive rate was told by the bank that “although Whistletree is owned by TSB, the two companies are separate entities”. 

According to the law firm, anybody whose mortgage has been administered by ‘Whistletree’ is eligible to claim. 

It also notes that customers who took out a ‘Together Mortgage’, which allowed borrowers to access lending of up to 125% of the value of their homes, may be able to seek additional compensation. 

Patching explains: “The Together Mortgage was a particularly toxic product.  It appeared to allow borrowers to take out an unsecured loan, alongside a mortgage, at a reasonable rate of interest, but there was a catch: if the mortgage was ever paid off, or if the borrower switched to another lender, interest charged on the linked loan of up to £30,000 would jump by up to 8%.”

At the hearing, the Autumn the Chancery Division of the High Court will be asked to make a Group Litigation Order, consolidating the claims and making it possible for anybody who has ever had a mortgage administered by Whistletree to seek compensation. 

Patching adds: “It is hardly surprising that – from what we can tell – the Whistletree portfolio of mortgages has comfortably produced more profit for the bank than its ‘ordinary’ mortgages.”

“Many of our clients have never been in arrears or fallen behind with payments, but were told for a significant period of time by a reputable high street bank that they could not access TSB’s mortgage rates, and instead must pay a very high Whistletree Standard Variable Rate (SVR).”  

“This breached the express and implied terms of the mortgage contracts, and TSB’s regulatory obligation to treat its customers fairly,” he adds. 

Commenting on the case, UK Mortgage Prisoners lead campaigner Rachel Neale says: “Mortgage prisoners finally have a voice against the ongoing injustice we are in and have been in for over a decade ” Mortgage prisoners are not treated fairly and haven’t been since the sell-off Northern Rock books to various funds. The government needs to act to help Mortgage prisoners, as does industry.”

Earlier this month, following the resignation of economic secretary to the treasury John Glen, Neale said the organisation looks forward to the mortgage prisoners’ issue being “reviewed with fresh eyes”.

She also highlighted that UK Mortgage Prisoners is keen to have “urgent engagement with the new minister”.

Before his departure, Glen announced that the UK government will not cap the SVR charged by inactive firms to help the 47,000 mortgage prisoners.

The comments were made by Glen in a written statement to shadow minister Chris Evans after being asked if he plans to cap SVRs for inactive lenders to protect people who cannot move their mortgages.

Glen said putting a cap on SVRs charged by inactive firms would be “an unprecedented market intervention and would undermine the principle of risk-based pricing which underlies the mortgage market”.

He suggested that a cap would “entail risks to the financial stability of firms” which he says “would be unable to vary their rates in line with their costs of funding and would be deeply unfair to borrowers in the wider mortgage market who pay similar rates to mortgage prisoners”.