Court of Appeal provides clarity for lenders amid ‘mortgage prisoner’ concerns

Michael Reading of Pinsent Masons was commenting after the Court of Appeal dismissed a legal challenge brought by a group of borrowers arguing they were forced to pay “an unduly high variable rate” on their mortgages after the 2008 financial crisis, rendering them so-called ‘mortgage prisoners’.

A mortgage prisoner is a borrower who is unable to switch to a new mortgage deal, even when they are up to date with payments, because they cannot meet affordability tests or because no lender will take them on. Mortgage prisoners are often trapped paying higher variable interest rates than mainstream mortgage customers because they can’t shop around for a new rate.

This issue became widespread among borrowers who had taken out mortgages with Northern Rock before the financial crisis. After Northern Rock was nationalised in 2008, thousands of former Northern Rock mortgages were transferred to TSB in 2016 and brought under its Whistletree brand.

In Breeze & Others v TSB Bank PLC, the borrowers argued that TSB had kept them on an unfairly high standard variable rate (SVR) specific to Whistletree, rather than applying the lower SVR used for TSB’s mainstream customers. They also sought relief under the Consumer Credit Act 1974 (CCA), arguing that there was an unfair relationship.

The borrowers’ core argument was that the contractual terms inherited from Northern Rock required TSB to apply its own lower SVR, rather than maintain the separate Whistletree rate. TSB argued that, under the general conditions applicable to the borrowers, it simply stepped into the shoes of Northern Rock and could continue to vary the inherited SVR without adopting its own house SVR.

In July 2024, the High Court ruled that TSB had not breached the express terms of the General Conditions applicable to the claimants' mortgage contracts. The borrowers launched an appeal, but on 26 January the Court of Appeal upheld the High Court’s ruling.

The judge held that the relevant contractual term was permissive and that there was no contractual requirement for TSB to align Whistletree borrowers with other TSB customers, and requiring such a switch would have frozen the inherited SVR until that choice was exercised – an outcome the court considered commercially illogical.

The Court of Appeal was also asked to consider whether borrowers could obtain relief affecting their mortgage. The borrowers argued that even if their mortgages were regulated mortgage contracts and therefore normally excluded from the CCA unfair‑relationship regime, the court could still order redress under section 140B because the unfairness arose from the combined loan‑and‑mortgage relationship.

The court rejected this argument. It confirmed that section 140A(5) CCA imposes a clear statutory boundary whereby courts cannot make any section 140B remedy “in connection with” a regulated mortgage contract, including repayment orders, interest adjustments or variations, even where that mortgage is a related agreement linked to an unsecured loan. The judge stated that borrowers cannot “use the unsecured loan as a back door” to obtain relief on a regulated mortgage.

Reading, a civil litigation expert specialising in financial services claims, conceded that the judgment may be viewed as a significant “setback” for mortgage prisoners. However, he said the ruling also provided helpful clarification, both for lenders on their obligations and for borrowers on their rights to seek contractual or CCA‑based relief in the courts. “For lenders, it provides clarity from the Court of Appeal: where the CCA point had yet to be subject to judicial scrutiny, a transferee may maintain a cohort‑specific SVR and CCA, but judicial remedies cannot be used to unwind or amend regulated mortgages.”