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The homeowners held captive by 'zombie banks'

Sam Brodbeck
Julian Chard estimates he has overpaid £25,000 of interest on his £1.5m home - COPYRIGHT JAY WILLIAMS

Homeowners who took out loans with what became “zombie banks” have been trapped on the highest mortgage rates for years.

In many cases, borrowers have paid tens of thousands of pounds more in interest because of a widening gap between the “standard variable rates” (SVRs) they are on and the best market rates.

This month the average two-year fix is 1.35pc, while the average SVR is 4.37pc, according to Bank of England data.

Thousands of so-called mortgage prisoners remain trapped on lenders’ SVRs – but the problem is worse for those with loans provided by banks or building societies that continue to operate but are closed to new business.

These “zombie banks” – of which Northern Rock, now known as Landmark Mortgages, is the best known – no longer offer mortgages to new customers. This has made it even harder for mortgage prisoners to switch onto more competitive rates.

In the wake of the financial crisis, the City watchdog implemented a series of reforms, known as the Mortgage Market Review, which tightened lending rules and outlawed self-certification or “liar loans”.

However, lenders were allowed to waive the new affordability checks for existing customers so long as they do not want to borrow more. This was meant to prevent people being blocked from accessing newer rates on the grounds they could not afford to meet lower payments.

Julian Chard

Some borrowers have been able to move to cheaper deals as a result but these cases normally involve banks that still lend to new customers. Where lenders have closed to new business, there are often no new mortgage deals to move customers onto.

Julian Chard, 70, has been fighting The Mortgage Business (TMB) since September 2012 when he was put on to the lender’s SVR at 4.95pc.

Mr Chard, a carpenter, has spent years fixing up his detached Wiltshire house, which is now valued at more than £1.5m. The outstanding mortgage loan is £350,000.

Yet he estimated he has overpaid by at least £25,000 since being moved from his original mortgage deal, which tracked the Bank of England base rate plus 2.44pc. If he had remained on this rate, he would have paid interest at 2.94pc for most of the past few years. 

To make matters worse, Mr Chard’s wife, Karen, 60, became seriously ill and he had to give up work to care for her. He fell behind with his mortgage payments during this period. He complained to TMB – today part of Lloyds Banking Group – about the fairness of his high-interest mortgage and TMB’s treatment of him during his wife’s illness.

When this got him nowhere he turned to the Financial Ombudsman. An adjudicator ruled in Mr Chard’s favour at the end of 2015, and ordered TMB to re-rate the couple’s mortgage as if the original terms had never changed. TMB disagreed with the ruling and the matter has been escalated within the Ombudsman but more than two years later remains unresolved.

Mortgage cheapest rate

A letter from the Ombudsman sent this month said it was “really sorry” it had not been able to answer the complaint.  It also said Mr Chard’s problem raised “complex” issues and was being looked at along with a number of other similar cases.

Mr Chard said: “I’ve got a lovely place but I don’t feel we can really enjoy it. It feels like a game of pass the parcel, but the music never ends.” 

A spokesman for Lloyds said it was "working closely" with the Ombudsman but that it was “inappropriate” to comment while its  review was ongoing.

The bank said it was "committed to offering alternative mortgage products to all customers on standard variable rates. We may restrict access to new products in certain circumstances – for example, where a customer is in arrears."

HBOS closed TMB in August 2008. Lloyds made a takeover bid for HBOS the following month, completing the acquisition in 2009.

Readers have contacted Telegraph Money to share details of their battles against “zombie” lender Northern Rock. 

The failed company, whose collapse in 2008 sparked the first run on a British bank for 150 years, was one of the early casualties of the financial crisis. It sold thousands of “Together” deals that allowed people to borrow 125pc of the value of a property. The Government took over the bank, only selling it in 2015. 

Lloyds Bank says it is 'committed to offering alternative mortgage products to all customers' Credit: Peter Nicholls/REUTERS

Cerberus, a US private equity group, acquired £13bn of mortgages and loans and rebranded the lender as Landmark. Like TMB, it is closed to new business.

Sam Harris, 50, has been trying to secure her boyfriend a cheaper deal. He has been stuck on the lender’s SVR, now 4.64pc, for years. Ms Harris said: “He has a good credit score and a healthy amount of equity in the property but no other lender will take him on. Cerberus have never suggested anything and we don’t know what to do.”

A spokesman said: "Landmark complies with all applicable regulatory standards and guidance, in particular 'treating customers fairly' and adopts a very robust framework which ensures the highest standards are maintained.

"As a policy, we do not charge any early redemption fees, so customers that wish to move to alternative lenders are able to do so."

Nick Morrey, of broker John Charcol, said: “They are under no obligation to offer rate-switch deals. Keeping all the borrowers they have on a relatively high variable rate is the quickest way to encourage those who can to remortgage away.” 

A spokesman for the Financial Conduct Authority said it was investigating barriers to borrowers switching mortgage deals.

"If we find that the market is not working well for consumers, we can consult on introducing new rules or other measures to address this," they said.