One agreement or two?

Southern Pacific Mortgage Ltd v Heath CA TLR 20 November

The defendant had a mortgage advance on which some £19,000 was outstanding. She wished to obtain further credit on the security of her house and obtained an offer from a different lender of a loan of almost £29,000 to be secured on a first legal mortgage of the house. In order to ensure that the new lender obtained a first legal mortgage, the previous mortgage had to be redeemed and it was a term of the offer that that should happen. The transaction was completed and the first mortgage was redeemed. The benefit of the mortgage was assigned by the defendant to the claimant. At the time of the transaction an agreement providing for credit of more than £25,000 was not regulated by the Consumer Credit Act 1974. As a result the formal requirements of the Act as to the content of the documents and procedures for execution were not followed. The defendant argued that the agreement had to be treated for the purposes of the Act as if it comprised two separate agreements, one relating to the amount which was used to repay the previous mortgage and the other for the rest. Therefore the Act applied to each agreement and because it had not been complied with, no part of the agreement was enforceable.