More than 40,000 British borrowers are in line to get thousands of pounds in compensation after London's High Court ruled against former bank Northern Rock in a test case over the wording in past loan documents.

The court judgment said about £258 million could be paid out in compensation by British taxpayers, as the government now owns the part of the bank that made the loans.

The payments will go to 41,000 former Northern Rock customers - at an average of £6,300 each - and are likely to prompt other banks and the regulator to double-check whether any past loans were incorrectly worded.

The High Court ruling released on Wednesday was against Northern Rock Asset Management (NRAM), the “bad bank” of Northern Rock that was nationalised in 2008 and is now part of UK Asset Resolution (UKAR), a state-run “zombie bank” that does not take on new business.

“We are now considering the impact of the judgment and taking legal advice on whether to appeal,” UKAR’s chief executive Richard Banks said.

“Customers do not need to act at this stage. If any redress becomes due, we will write to all those affected to advise on next steps,” he added.

UKAR said it had set aside £261 million to compensate customers.

NRAM brought the legal claim against itself to test whether documents issued to customers under previous “Together” mortgages were incorrect and if it owed compensation.

“Together” mortgages were offered by Northern Rock, allowing customers to take an unsecured loan of up to £30,000 alongside their mortgage, and repay the “top-up” loan at the same rate as the mortgage.

The offer proved attractive, but the High Court judge said documents related to unsecured loans of between 25,000 and 30,000 pounds taken out between 1999 and 2008 were incorrect and customers should be paid back interest and fees.

Two years ago NRAM had to set aside about £270 million to repay customers who had borrowed up to £25,000, because documents were wrongly worded under the terms of the Consumer Credit Act.

Reuters