Unenforceable Credit Agreements
Many landlords have taken on buy-to-let mortgages in recent years, and unfortunately there is not much that they can do in the short term to reduce these debts other than convert them to repayment mortgages or make over payments where they can.
We know that there are also many landlords that have taken on additional forms of borrowing, NOT to fund a flash lifestyle, expensive cars, but with the legitimate objective of financing the purchase or refurbishment of a buy-to-let or investment property.
Many of these loans were obtained in the knowledge that they were secured against a tangible property asset in the belief that whilst prices would not necessarily rocket, they wouldn’t fall either.
This assumption has unfortunately being proved wrong. Landlords that have over-extended themselves with personal loans are now finding that, because they can’t refinance with a new buy-to-let mortgage that they have been left with a plethora of borrowing and no way out.
Many of these landlords are going to be tempted by companies touting services that promise to strike out these loans and credit agreements.
Recent cases covered in the media illustrating successful cases where lenders have had their credit agreements cancelled by the courts leading to borrowers being able to claim back thousands of pounds in interest.
Unfair relationship between lender and borrower
New provisions introduced by the Consumer Credit Act 2006 which apply to new credit agreements from 6 April 2007, and to pre-existing agreements from 6 April 2008 allow borrowers to challenge unfair credit agreements in court.
This is in addition to an enhanced ability for consumers to take disputes to the Financial Ombudsman Service (FOS).
Section 140A of the 1974 Consumer Credit Act (as amended) provides that a court may determine that the relationship between a lender and a borrower arising out of a credit agreement (or the agreement taken with any related agreement) is unfair to the borrower because of:
• any of the terms of the credit agreement or a related agreement
• the way in which the lender has exercised or enforced its rights under the credit agreement or a related agreement, or
• any other thing done (or not done) by or on behalf of the lender either before or after the making of the credit agreement or a related agreement.
The courts have a wide range of powers where a credit relationship is found to be unfair, including:
• altering the terms of the credit agreement or a related agreement
• reducing the amount payable by the borrower
• requiring the lender to refund money to the borrower
• removing any duty placed on the borrower under the agreement , and
• imposing requirements on the lender or an associate.
What should I do if I think I have an unfair credit agreement?
The arrival of the 2006 Consumer Credit Act has resulted in the emergence of a whole new industry of firms promising to be able to take on lenders and strike out unfair credit agreements saving borrowers tens of thousands of pounds.
However, Property Hawk advises landlords to seek independent advice before using these firms services. Businesses can only provide claims services if they are authorised and regulated by the MOJ under the Compensation Act 2006. Such businesses may also need to hold an appropriate OFT consumer credit licence.
Landlords may be asked to pay large up-front fees, often up to £500, for the businesses to review their credit agreements with no guarantee that they will be successful. These businesses will then make wild claim that many of these agreements are completely unenforceable and that landlords can have debts cancelled and claim back thousands of pounds.
Property Hawk offers FREE advice
Property Hawk advises landlords that if they think that they may have an illegal credit agreement that they can now benefit from a free loan agreement check courtesy of our association with Money Lawyer.