English High Court rules on transferee mortgage lender's entitlement to maintain prevailing SVR

The claimants took out mortgages with Northern Rock, before that bank failed during the global financial crisis in the late 2000s.  After a period of UK government ownership, their mortgages were acquired in 2016 by TSB, which administers them under its 'Whistletree' brand.  The claimants allege that TSB has charged excessively high interest and, in particular, that it has wrongfully applied an SVR to their Whistletree mortgages that is higher than the SVRs that it applies to borrowing by other TSB customers.  In doing so, the claimants say that TSB has acted in breach of certain express and implied terms of their mortgage contracts and of statutory duty, and the claimants also seek relief under the 'unfair relationship' provisions in sections 140A to 140C of the Consumer Credit Act 1974 (the "CCA") as well as under other consumer contract legislation.

The Court considered three issues:

1. The express terms issue: Whether TSB breached the express terms of the claimants' mortgage contracts by charging interest based on the 'Whistletree SVR' and not on one of TSB's other SVRs that it applies to different mortgage borrowers.
2. The implied term issue: Whether the claimants' mortgage contracts contained an implied term requiring TSB to exercise any discretion to set or vary interest rates by reference to customer expectations.
3. The CCA issue: Whether the Court can make an order for relief under the unfair relationship provisions of the CCA in connection with a regulated mortgage contract, where that mortgage contract is "related to" another credit agreement.

On the express terms issue, the Court held that the claimants' mortgage contracts did not oblige TSB (as a transferee lender) to apply to the claimants' mortgages any existing SVR that the lender might operate for other borrowers.  TSB was contractually entitled to act as it did in maintaining the prevailing SVR on the mortgages when it acquired them, and accordingly TSB has not breached the express terms of the claimants' mortgages.  The Court's ruling on this issue means that the claim for breach of contract fails in its entirety.

The implied term issue was resolved before trial, when the claimants conceded that their mortgage contracts did not contain an implied term in the broad form they contended for, requiring TSB to take into account customer expectations when exercising its discretion to set or vary interest rates.  The question of any alleged breach of the implied term did not form part of the preliminary issues trial.

The CCA issue was resolved in favour of TSB.  The Court held that no order can be made under s.140B CCA for repayment of sums paid under a regulated mortgage contract, or an order for any other relief that has an effect on the regulated mortgage contract, even if that regulated mortgage contract is a ‘related agreement’ to a credit agreement for the purposes of s.140A.  The question of whether or not any claimant's regulated mortgage contract is a related agreement for these purposes was not determined as part of the preliminary issues trial.

Next steps

This judgment materially narrows the scope of the claim.  The Court has rejected any suggestion that TSB breached the express terms of the mortgage contracts, and has clarified how the unfair relationship provisions of the CCA operate where a regulated mortgage contract is entered into as part of a linked transaction with a credit agreement that is subject to those provisions.  This is a novel point, on which there was no previous judicial authority. 

The Court's ruling on the construction of the contractual interest provisions where a mortgage is acquired by an incoming lender will be of interest to banks and other institutions who are acquiring or divesting mortgage portfolios.  The judgment is also a good example of how a well-chosen preliminary issue can be effective in disposing of significant elements of a claim at an early stage, and without the time and cost of a full trial.

The case is Breeze and others v TSB Bank Plc [2024] EWHC 2427 (Ch).  Hogan Lovells partner Louise Lamb and senior associate Tom Devine act for TSB, and Sonia Tolaney KC, James Duffy KC and Tim Goldfarb appeared at trial for the Bank.

Authored by Louise Lamb, Tom Devine.