Key Points

  • The inclusion of clause in a mortgage which gave rise to a power of sale, in the event of the borrower becoming unable to manage his financial affairs, was not "unfair" under the CCA 1974.  
  • When exercising a power of sale, lenders would be well advised to ensure their conduct accords to guidance such as  that produced by the OFT.  

The facts

A borrower under a Buy-to-Let mortgage, with a history of payment arrears, was admitted to hospital and diagnosed as lacking the mental capacity to manage his financial affairs. Consequently, the lender exercised its powers in the mortgage to sell the property. The borrower claimed that, under ss.140A and 140B of the CCA 1974, the relationship between himself and the lender was unfair because of: (a) the inclusion of a clause permitting the sale of the property in the event of his lacking mental incapacity; and/or (b) the way in which the lender exercised its rights under the mortgage.

Decision

Having considered guidance, such as the OFT's "Irresponsible lending" document, the Court concluded that the inclusion of a power of sale arising upon the borrower's mental incapacity could not be "unfair". Further, it would be an exceptional case for the Court to conclude that a mortgagee had acted "unfairly" in deciding to realise the security, where the power of sale had become exercisable due to the non-payment of the mortgage instalments.

Comment

Under the CCA 1974, the Court has a wide remit to review "unfair" conduct. In this case, the only potentially viable complaint was in respect of the lender's conduct leading up to the sale.  The question of unfairness will be considered in the light of non-legislative guidance – as a result, lenders should consider those sources when exercising their powers of sale.

Graves v Capital Home Loans Limited