Jane Charles is hoping her 15-year “nightmare” involving a costly interest-only loan may soon be over after a court ruled that some of the lender’s terms and conditions were unfair.
The judgment raises issues that could affect thousands of people, and is likely to be studied closely by other borrowers, including customers of other subprime lenders.
The case pitted Charles, a 66-year-old from West Sussex, against Blemain Finance, part of a company with several thousand customers and a £4bn loan book.
The saga began in 2006, when Charles and her husband were looking to buy a house in Epsom, Surrey. High street lenders were not prepared to give them a mortgage for the full amount they required, and they needed to raise an extra £30,000 for the deposit.
To pay the deposit on the new property, she borrowed from Blemain via an interest-only loan secured on her flat
She did not want to sell her flat in Streatham in south London as it was a shared-ownership property, so she went online and was referred to a broker who put her in contact with Blemain Finance. Its parent company, Together Financial Services, describes itself as one of the UK’s leading specialist mortgage and secured loan providers.
To pay the deposit on the new property, she borrowed from Blemain via an interest-only loan secured on her flat. Once costs including the broker’s fee and an arrangement fee, had been added, the total sum was £33,038.
This was a 25-year loan – Charles was 52 when she took it out – and the rate has moved up and down. At the beginning she says the interest rate was 13.9%, and the court documents say it went up to 14.9% at one point. At the start of this year it went down from 14.4% to 11.45%, reducing her monthly payment from £396 to £315.
“It was a terrible deal [but] at the time I really needed that £30,000,” Charles tells Guardian Money. “Although it was interest-only and the interest rate was very high and I thought the terms were a bit difficult to understand, I thought: ‘OK, maybe I can change something about this later on.’”
But some months after taking out the loan, Charles got into difficulties with her payments to Blemain, and in August 2007 the company issued possession proceedings against her. The following year a suspended possession order was made but the arrears on her account were paid, so it wasn’t activated.
In late 2016 she contacted a lawyer, Paul Tilley, and decided to start the legal process.
In 2018, Blemain tried to revive the old suspended possession order, and a few months later Charles was given permission to bring a counterclaim in which she claimed several of the terms were unfair and there had been breaches of the loan agreement.
At a county court hearing in November, Charles said that, on reflection, the loan was unaffordable, and her agreement did not give any details of what charges could be applied if she failed to make a payment.
The court heard she had written to complain about the high level of interest, and that she said “whatever she did, [Blemain] kept adding to her account”. The judgment stated that Charles said she wanted to pay off the loan early “but all her attempts to negotiate failed”. She also described being “bombarded” with letters and phone calls about the arrears.
After the hearing, the judge ruled that the clause in the agreement relating to changes to the interest rate was “unfair”, and therefore not binding on Charles, for a number of reasons.
The judgment said the wording about when it would be invoked was very broad, referring simply to “market conditions”, and broadened out further by the words “actual or expected”. Meanwhile, the period of notice was “very short” – only seven days – and the consumer’s right to redeem was “curtailed” by early redemption penalties throughout a significant period of the agreement.
The clause relating to the recovery of costs, charges and expenses was also judged to be “unfair” as it was too heavily weighted against the consumer and could mean a borrower having to pay a “disproportionate” amount in charges.
But the judgment did not back her on everything: it said that while Blemain failed to carry out checks regarding how the loan was to be funded in retirement, in breach of official guidance at the time, “that does not automatically render the relationship unfair”. It added that Charles, who now lives in Worthing, was “an intelligent borrower” who “went into the agreement open-eyed” and, based on the figures she provided, the monthly payments were affordable.
The court also heard that her application form said the loan was for “home improvements, capitalisation”, not for a house deposit. Charles said it was the broker who suggested those words be put down in order to help “get the loan through easier”. The judge said he did not accept that Blemain knew about the real purpose of the loan.
I’m 66 and into my retirement – I didn’t expect to be in this position of still owing this debtJane Charles
Blemain has had to reconstruct the account as a result, and the judgment has reduced the sum Charles is said to owe by about £25,000.
However, while this is a good result for her, it will still have proved to be a very expensive loan. Charles has so far paid back a total of almost £60,000 in interest, and there is still an outstanding debt of almost £45,000, even after the deduction.
“I’m going to have to sell my flat to pay them off,” says Charles, adding: “It’s a ridiculous situation. I’m 66 and into my retirement – I didn’t expect to be in this position of still owing this debt. This situation has affected my mental and emotional health, my credit file is ruined, and the funds I expected for my retirement are now also affected.”
Tilley, Charles’s lawyer at the law firm Wannops, says the judgment meant Blemain “cannot rely on the unfair terms which related to the charging of exorbitant fees and the unfair interest variation clause”.
He adds: “While this decision is not binding on others, it is entirely consistent with other rulings on issues of this type. It shows that the courts will not allow creditors to impose unfair terms and conditions on consumers, and where such terms are used, the courts will not hesitate in striking those terms from the contracts.”
The interest rate will now be fixed at 11.45%, and Blemain must pay 75% of the legal costs that Charles incurred.
The judgment will be of interest to other Blemain customers, as well as those of other specialist mortgage and secured lending firms.
Guardian Money put a number of questions to Blemain/Together. It sent us this statement: “We are sorry to hear that our customer, who took a loan out with us in 2006, was unhappy in her experience. We acknowledge the county court’s judgment, which found points in favour for both parties, including the rejection of any unfair relationship or irresponsible lending by Blemain. We will take into account the relevant aspects of the decision specific to this case as we work with all parties to progress this matter.”
For her part, Charles says she just wants to “get this whole thing sorted and put it behind me – it’s been a total nightmare”.
