FirstPlus Financial Group: Potentially Mis-sold Second Charge Mortgages

Before the financial crisis began in 2007, First Plus Financial Group PLC (“FirstPlus”) (a subsidiary of Barclays Bank UK PLC) had a reputation as a lender that could readily lend money to borrowers with impaired or poor credit histories, often in the form of second charge mortgages. In 2008, Barclays closed the door on new lending by FirstPlus due to massively slowed demand. However, the ramifications of those second charge mortgages are still being felt by some borrowers today.

Second Charge Mortgages

A second charge mortgage is a type of secured homeowner loan that sits behind a first mortgage, and uses the equity in your home as security. Borrowers may choose to take out this type of loan for a few reasons, such as to raise money for home improvements, or if they want to consolidate their loans, such as credit cards, overdrafts and car loans, into one, for example. In reality, they are often exchanging short term debts for a long term debt, and are ultimately left with two mortgages to pay off.

These types of loans are often incredibly expensive to repay and tie borrowers into very lengthy contracts. They are, therefore, not always suitable and a good option for borrowers with considerable debt or bad credit. This, however, was not necessarily a barrier to FirstPlus when approving second charge mortgages, as the borrower’s existing home would be used as security.

Nevertheless, if a borrower is unable to repay their second charge mortgage, they run the risk of losing their home regardless of whether they have kept up with payments of their first mortgage. In those circumstances, the first mortgage lender is repaid first when the property is sold, and the second charge holder is next in line to recover their money, providing there is enough of a surplus.

The Role of FirstPlus

FirstPlus is alleged to have sold second charge mortgages to many homeowners claiming that they were ‘variable rate loans’, which would in turn allow the bank to raise or lower interest rates in accordance with changes to interest rates generally. Instead, it appears that a large number of borrowers have been forced to pay extremely high interest rates of up to 12% per annum throughout the term of their loans, despite the Bank of England base rate falling to a historic low in 2009.

Consequently, a great number of borrowers may have found it very difficult to pay off their loans, and in some cases are paying back considerably more than they borrowed. There is also a concern that borrowers may face even larger repayments if the base rate increases.

Any failure by FirstPlus to properly advise borrowers as to the effect of these interest clauses prior to entering into loan agreements could be constituted as mis-selling. If you think this might have happened to you, we recommend that you seek independent legal advice to protect your position.

How can Ellis Jones help you?

Ellis Jones specialist Solicitors has received and acted upon a number of complaints from clients in relation to the mis-selling of financial products and are experienced in advising and dealing with such matters.

If you wish to discuss a potential claim or complaint then please contact our specialist Banking and Finance Litigation lawyers, who will be able to offer a free initial discussion.