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Lender’s decision not to offer ‘interest only’ terms ruled not to be discriminatory

  • United Kingdom
  • Litigation and dispute management

29-08-2018

Pursuant to provisions in the Disability Discrimination Act 1995 and the Equality Act 2010 (‘the Equality Legislation’), if a policy makes it impossible or unreasonably difficult for a disabled person to access a service provided, there is a duty to take reasonable steps to change that policy so that it no longer has that effect.  However there is no requirement to fundamentally change the nature of the service.

The Court of Appeal in Green –V- Southern Pacific Mortgage Limited [2018] EWCA Civ 854 (‘Green’) has upheld a decision that a lender’s policy not to offer an interest only mortgage to an existing mortgagor who held a repayment mortgage (‘the Policy’) was not discriminatory under the Equality Legislation. The court held that the service was restricted to the provision of a repayment mortgage only and the Policy did not make it impossible or difficult for a disabled person to access that service.  Furthermore, even it if the Policy had restricted access, it was not reasonable to expect a lender to accept an interest only loan as this was a lesser security and furthermore it would have been a fundamental change to the nature of the service.

Background

Southern Pacific (“SP”) had entered into a mortgage  with Ms Green secured by way of a legal charge over her property.  The account fell into arrears and SP issued possession proceedings which resulted in a possession order being granted in their favour which was appealed by Ms Green. 

Around the time Ms Green had fallen into arrears, she had become unemployed and was diagnosed with severe depression, which is a condition capable of amounting to a disability under the Equality Legislation.  SP had refused Ms Green’s requests to switch her mortgage to interest only as their blanket policy was not to offer forbearance to repayment mortgagors by allowing them to switch to interest only.  The County Court rejected Ms Green’s claim and she appealed to the Court of Appeal.

Court of Appeal decision

The court considered that the “service” provided to Ms Green should not be broadly defined to include the provision of all possible kinds of mortgage but instead was the provision of a repayment mortgage. An interest only mortgage was an altogether different service with a more uncertain security because the capital balance would remain at the end of the term with no clear repayment vehicle for the same.   The Policy did not make it impossible or unreasonably difficult for Ms Green to access the service.  Furthermore, the Policy applied to everyone, not just those suffering from a disability and therefore there was no need to make adjustments to bring about equality in the result.   Ms Green’s appeal therefore failed for those reasons.

However, the court did go on to hypothetically consider whether the request to convert to an interest only mortgage was a reasonable adjustment that should have been made if court had not rejected the appeal for the reasons above.  The court considered the Court of Appeal decision in Edwards v. Flamingoland Ltd [2013] EWCA Civ 801, where it was held that adjustments to services did not require the service provider to take steps that would fundamentally alter the nature of their service. The court considered that as the major benefit of a repayment mortgage to a lender was the security it provided for the loan in contrast to the security provided by an interest only mortgage which was more uncertain, it would be unreasonable to expect SP to allow disabled persons to be exempt from its policy and thus have access to a mortgage which gave SP a lesser form of security.  Switching to an interest only mortgage may also have meant that Ms Green was unable to redeem the loan at the end of the term, leaving her homeless and indebted.  Further, whilst the inability to switch to an interest only loan made it difficult for Ms Green to service the mortgage repayments, it did not affect her ability to sell the house and redeem the mortgage overall.  Switching to an interest only mortgage would not therefore have been a reasonable adjustment for SP to have had to make.

At first instance, a separate claim in relation to whether a blanket policy of refusal was indirect discrimination was rejected but as no new point was raised on this aspect on appeal it was not considered further.

Comment

The decision is favourable for lenders as the court was prepared to take a restrictive view on the definition of the service which may otherwise have led to the 'reasonable adjustment' mechanism becoming too general and sweeping in its effect.

There may however be cases where a lender’s policy does make a service more difficult or impossible to access for a disabled person and in those such cases it will be necessary for a lender to consider  requests for reasonable adjustments.

This decision does however confirm that although lenders should pay heed to a borrower’s disability once they have knowledge of the same, it will not be discriminatory if they do not change their policy where it would result in (a) their security being unreasonably diminished, or (a) where it can be shown that the borrowers themselves could be put at risk, even if it would provide them with short term relief, or (c) where it would result in a fundamental change to the service.

As a precaution, lenders should always consider whether automatic refusal to carry out reasonable adjustments to a policy is appropriate in scenarios involving disabled customers, especially if the result is possession proceedings.  Consideration of whether the disability impacts a customer’s ability to repay is paramount.  Possession proceedings against a disabled borrower should be considered a last resort.  R(JL) v. Secretary of State for Defence [2013] EWCA Civ 449 confirmed that the responsibility for considering whether a disabled person was being discriminated against was ongoing and, “must be considered at every stage from pre-action compliance... to the decision to pursue the case to trial, and thence to possession”.  

There is no legislative requirement for a borrower to disclose a disability to the lender.  A lender cannot be criticised until it has notice of the disability by the borrower.  However, even if a borrower does not provide medical evidence, any disclosure of a potential disability should be taken seriously, and the appropriateness of possession action weighed up.  From the moment of disclosure, the account needs to be treated with caution regarding enforcement, and possible changes to internal policies and procedures considered, as the court will expect the lender to explain why it felt enforcement action was necessary if  there are alternative options.  A lender will also be keen to adhere to its duties to treat customers fairly under the Mortgage Conduct of Business Rules (“MCOB”).

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