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Mortgage Debt Not Regulated by Consumer Credit Act 1974

Cotswold HouseA couple who defaulted on their £500,000 mortgage have failed to convince the High Court that the loan is unenforceable by reason of the lender’s failure to comply with the safeguards contained within the Consumer Credit Act 1974. The court rejected the householder’s plea that the bank’s agreement to capitalise their arrears had resulted in the loan agreement becoming regulated under the act.

The couple’s home was valued at £900,000 when they mortgaged it and, after they fell into repayment arrears, the bank had agreed to add unpaid interest to the capital sum secured on the property. It was submitted that that resulted in the loan falling under the aegis of the act and triggered obligations on the bank relating to the form of regulated credit agreements and the service of default notices. The bank’s failures to meet such requirements were incapable of being remedied with the consequence that the mortgage security was rendered worthless and the entire loan was irrecoverable, it was argued.

However, in dismissing those arguments, the court accepted the bank’s submissions that the capitalisation agreement had not resulted in any further cash or other funds being provided to the borrowers. It was merely a rescheduling of the existing payment obligations and did not constitute the provision of a cash loan within the meaning of the act. The court also dismissed the couple’s plea that the bank had given up any right to pursue the mortgage debt by taking the step of ‘securitising’ the loan and assigning it to a third party.

However, in resisting the possession action, it remains open to the couple to argue, inter alia, that the bank treated them unfairly in refusing to further accommodate them when they were unable to keep up the repayments. Their lawyers argue that a ‘reasonable lender’ would have been prepared to do more to help them and that the securitisation of the loan may have had a causative effect on the bank’s refusal of assistance that it was not contractually obliged to give. Those issues will be determined at a further court hearing.

Santander UK Plc. v Harrison & Anr. Case Number: QB/2013/0060