Court refuses judicial review on FOS mortgage rate decision

The High Court has found in favour of FOS in an application by a mortgage lender for judicial review of FOS’ decision on a complaint about mortgage interest rates.  Mrs D had taken out a 10 year interest only mortgage with GMAC-RRC Ltd in 2006, and the following year the mortgage was transferred to Mortgage Agency Service Number 5 Ltd. The interest rate was originally fixed at 5.64% and reverted to an SVR from 2009.  Mrs D’s offer letter had noted the SVR at the time was 6.74% but one of the conditions said that the SVR could be varied “to reflect a change which has occurred, or which we reasonably expect to occur, in the interest rates charged by other mortgage lenders”. After the fixed rate period ended, the SVR changed 8 times during the remainder of the 10 year term, from 2.99% at its lowest to 5.75% for nearly 4.5 years between May 2012 and September 2016.

When the term ended, Mrs D could not afford to repay the principal sum, the value of her property had fallen below the purchase price and the amount borrowed and she could not remortgage at a better rate.  The lender wanted to repossess the house, but Mrs D wanted to remain there. In 2018 she complained, making several different complaints, of which one related to the unfairness of the repayments being more than she expected. She then complained to FOS explaining that the lender was refusing to extend the mortgage term and that she could afford repayments but had no way of paying the balance. She felt trapped as the house was in negative equity, she was 70 and could not see how she could move the mortgage. One question that her representative asked was why the SVR being charged was different (greater) than the Co-op Bank group’s rate, why the group was not applying the UK Finance voluntary agreement to this lender’s borrowers, whether it was taking interest of “trapped” borrowers and why Mrs D was not offered a different mortgage product available from the group.

The Ombudsman asked for permission to look at the issues since 2008 but the lender refused, saying it gave consent only to looking at matters in the 6 years that preceded the complaint as DISP states.  However, the Ombudsman considered that in order to determine the complaint about the charges during those years it would be necessary to consider the entire history of the matter. The lender sought for the part of the Ombudsman decision setting out the latter element of the investigation to be quashed. It also objected to the Ombudsman’s decision that each time interest was charged within the 6 year period was a matter of complaint.

The Court found that judicial review was permissible only if the Ombudsman had committed such errors of logic as to be legally irrational. FOS said the Ombudsman was permitted to rely on the principle of fairness in Principle 6.

The Court said it preferred FOS’ submissions and agreed with it that since the Ombudsman must consider what is fair and reasonable in all the circumstances of the case she was entitled to have regard to whether it was fair and reasonable to continue to charge interest at the SVR in place at the beginning of the 6 year period, even though it had been set earlier – and, in doing so, examine the history and rationale for the rate itself.  Moreover, it was open to the Ombudsman to consider each interest charge as subject of the complaint (and on the face of it she was correct to do so). The application for judicial review was dismissed.

Emma Radmore