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NHL borrowers may take appeal to Lords

The Court of Appeal ruling last week that disgruntled borrowers of National Home Loans must continue to pay its high variable rates has left lenders breathing a sigh of relief.

By issuing a ruling which did not let the Paragon subsidiary entirely off the hook but which failed to set the precedent the borrowers were looking for, the court managed to maintain the status quo in an area many feel is in need of review.

But while NHL was claiming outright victory following the announcement, the lawyer acting for the borrowers was quietly highlighting the small crumbs of comfort in the judgment which have convinced him to mount another legal challenge.

London-based solicitor Joseph Aaron claims the ruling is far more ambiguous than the lender and its parent suggest and is determined to take the case to the House of Lords.

If he were to win, Aaron believes it would set a legal precedent which would mean lenders would no longer be able to set variable rates at whatever level they choose – no matter how fair or unfair.

But despite Aaron&#39s optimism there is a danger the case may never see the light of day again. His clients, who must continue to pay variable rates up to 70 per cent more than market trends, cannot afford to back the bid unsupported.

In an effort to keep the appeal alive, Aaron plans to appeal to other borrowers stuck on high variable rates to make donations for the challenge on the basis that they will benefit if the case is won.

He says: “The problem is that the burden of litigation is on the borrowers and they simply cannot continue without help. But I believe there are around 7,000 Paragon borrowers in this position and I hope that some of them can contribute donations of around £100 each. That is not so much if we win the case and save them hundreds of pounds.”

Aaron knows he has a job on his hands to persuade borrowers to contribute to a case which has twice been lost in separate courts.

His appeal for funds is likely to hinge on the ambiguity of the Court of Appeal ruling, which has prompted him to view the outcome as a “partial” victory.

What gives him cause for optimism is a part of the judgment stating that interest rates cannot be set “dishonestly, for an improper purpose, capriciously, arbitrarily or unreasonably”.

Aaron concedes the wording is open to interpretation but believes the judgment marks a significant step forward in protecting borrowers.

He believes it means lenders are now obliged to lower the rate for borrowers who have slipped into arrears when cutting rates for all other mortgage customers.

Typically, he claims, lenders would penalise borrowers behind with payments by not passing on Bank of England base rate cuts. Aaron believes most judges are likely to view this type of practice by a lender as acting capriciously and therefore against the law of the land established in the Court of Appeal.

Although many mortgage brokers agree the judgment is a step in the right direction, London & Country head of marketing Jane Harrison is unsure it goes far enough to persuade other borrowers that financing the Lords challenge would be worthwhile.

She says: “When a borrower goes into a mortgage contract, they are normally fully aware of what they are signing and most are happy to accept those conditions at the time. This, I suspect, is why the Court of Appeal made the ruling it did.

“I am sure that there are many borrowers who would be keen to see a House of Lords judgement go their way but I doubt whether they would actually be prepared to try for it out of their own pockets.”

To illustrate this point she draws a comparison – and an important distinction – between the borrowers in the Paragon case and members who try to force building societies to convert into banks.

She says carpetbaggers – despite not having the funds to finance substantial campaigns likely to boost their chances – never ask members to contribute money because they know very few would be prepared to do so.

She sees no reason why Paragon borrowers would be any more likely to contribute funds, even though the average windfall payout is substantially less than the savings borrowers would likely make with rates more in tune with industry trends.

She is not alone in this view, although there are other brokers more prepared to give the benefit of the doubt to other NHL borrowers.

Charcol head of PR Siobhan Hotten says Aaron may not necessarily be misguided in thinking he can generate funds in this way but points out the Catch-22 situation which could prove crucial to the outcome.

She says: “I would not be surprised to see a number of borrowers giving money to the challenge to give it a chance because it would certainly create quite a degree of interest.

“But having said that, one has to question just how many of these people – given the high rates they are paying – can actually afford to contribute as much as £100.”

Aaron is reluctant to express an opinion on his chances of getting the funding but the truth is that neither he nor his clients have much choice if the case is to go further.

As brokers point out, it is something of an unusual situation but the ramifications for lenders if the case should reach the Lords and get the result Aaron insists he could get are enormous. Paragon and NHL will not be the only lenders watching with interest.

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