Customers who stayed on their lender’s standard variable rate may have been unlawfully overcharged, says legal technology group

Hundreds of thousands of mortgage customers could be entitled to redress after being overcharged by lenders, a legal technology group says. 

ME Group claims tens of thousands of mortgage prisoners, who were unable to remortgage off their lender’s standard variable rate (SVR), and hundreds of thousands of other customers, who chose to remain on it, could be in line for thousands of pounds in remediation. 

The group says it has assessed the cases of more than 100,000 mortgage customers who have contacted it since August last year and 52% of these have either been mis-sold their mortgage or been overcharged interest by their lender. 

It estimates that some of these borrowers could be entitled to an average of between £70,000 and £80,000 each in remediation from lenders. 

Why is this happening?

ME Group claims that after the financial crisis, when there was a substantial fall in the number of people taking out mortgages, lenders grew their revenue by increasing the difference between their own borrowing costs and the rates they charged customers. 

It was not possible to do this for people on fixed rate mortgages or tracker deals, but they were able to widen their margins for people on SVRs. 

The group claims that in 2012, the policy was found to be unlawful under European Consumer Protection law. 

Rob Cooper, chief executive of ME Group, says: “The fact that they affected that change to the margins to the detriment of consumers was found to be an issue.” 

Following the ruling, lenders updated their terms and conditions to ensure they were compliant when new mortgages were taken out, but they could not up date the terms on historical mortgages. 

As a result, ME Group claims that people who were unable to remortgage off a SVR, or who chose not to do so, were unlawfully charged excess interest. 

Who does it affect?

The issue potentially affects anyone who took out their mortgage before the 2012 ruling and stayed on their lender’s SVR when their initial deal ended. 

Overall, ME Group estimates as many as two million people could be affected, although it says a lack of available data makes the exact number hard to gauge. 

Read more: 5 ways to pay off your mortgage faster 

What’s the background?

A UK Finance spokesperson said: “Regulated lenders are required by the Financial Conduct Authority to treat customers fairly and work within a clear regulatory framework to ensure customers are provided with the correct information about their mortgage, prior to and during the product term.   

“We would always encourage customers who might be thinking about making a complaint to contact their lender direct.” 

It estimated that there are around 150,000 mortgage prisoners who are stuck on their lender’s reversion rate because no-one would advance them another mortgage due to tough affordability rules introduced under the Mortgage Market Review. 

In July, UK Finance announced a voluntary commitment by its members to help longstanding borrowers stuck on SVRs move to a new deal if they met certain criteria. 

Top 3 takeaways

  • Hundreds of thousands of mortgage customers could be entitled to redress after being overcharged by lenders, a legal technology group says

  • It claims those unable to remortgage off their lender’s standard variable rate (SVR) or who chose to stay on it could be in line for thousands of pounds in remediation

  • It estimates some borrowers could be entitled to an average of between £70,000 and £80,000 each in remediation from lenders

You might also be interested in...

Are you stuck with high mortgage interest repayments and cannot switch to a better deal? Let us know your experience in the comments, below...

* DISQUS *
comments powered by Disqus