Disabled borrower in arrears
Lender's refusal to convert to interest only loan
 EWCA Civ 854
A lender’s refusal to switch a repayment mortgage to interest-only did not amount to unlawful discrimination against a disabled borrower.
In 2006 the borrower remortgaged her residential property with a 20-year repayment loan from the lender for £96,000. She ran into financial difficulties and was unable to work owing to depression. It was accepted that depression was a protected characteristic for the purposes of the Disability Discrimination Act 1995 and subsequently the Equality Act 2010. Notwithstanding this, the lender commenced possession proceedings after which the borrower requested a transfer to an interest-only mortgage which the lender refused.
The borrower pleaded a defence in which she alleged that the failure to convert amounted to unlawful discrimination within ss 19-20 DDA 1995 and ss 15, 19, 21 EA 2010. She also relied on Art 8 European Convention on Human Rights or sought to suspend any order for possession under s 36 Administration of Justice Act 1970. The lender did not seek to justify its conduct but simply relied on its legal right to possession.
Whether a borrower with ‘protected characteristics’ under the Disability Discrimination legislation could require her lender to switch her mortgage from principal to interest-only and whether this could be relied upon in defence to a claim for possession?
The Recorder accepted that a claim for possession could be defeated by discriminatory conduct which is unlawful under DDA 1995 (London Borough of Lewisham v Malcolm  UKHL 43) and that the borrower’s disability was causative of the arrears, but held that:
- The lender did not discriminate unlawfully against the borrower when it started possession proceedings;
- The refusal to transfer to interest-only did not make it impossible or unreasonably difficult for a disabled person to make use of the mortgage service (the service being over the whole of the life of the mortgage from offer to redemption). Although a switch would have enabled the borrower to service some mortgage repayments, it would have no impact on her ability to redeem the mortgage at the end of the term. In any event, such a step was not a reasonable adjustment to services provided by the lender, who was entitled to rely on its security;
- Proceeding to trial was not a discriminatory action.
The court also rejected the borrower’s argument that the refusal to switch caused indirect discrimination because a borrower who became disabled and unable to work was less likely to be able to find work once unemployed. It was a legitimate aim for the lender to want to protect its security and it was proportionate to refuse the switch. Looking ahead, it would not be responsible lending to take the risk for the borrower to be left without a repayment vehicle.
As to s36 AJA 1970, the borrower’s proposal was to remain in the property until the expiry of the term and then sell it. The court was not prepared to embark upon a course of conduct which involved a long period of speculation (applying Bristol & West Building Society v Ellis (1997) 29 HLR 282). There was a shortfall in DWP payments which G was unable to make up.
The court made a 28-day order for possession, stayed, and with an extension of time for filing Notice of Appeal, until 28 days after judgment had been handed down by the Supreme Court in McDonald v McDonald, so long as the borrower paid the monthly interest due on the mortgage.
The borrower appealed.
Decision on appeal
The Appeal was dismissed. Section 22 DDA 1995 and s 35(1) EA 2010 provide an express statutory defence to a claim by a landlord for possession if the tenant can show that the claim is discriminatory so as to be unlawful (Lewisham LBC v Malcolm  UKHL 43).
There is no equivalent statutory provision in relation to a mortgagee’s possession claim. There is no legislation which expressly limits a mortgagee’s rights either at common law or under the Law of Property Act 1925. This was the first case in which the Equalities legislation has been raised as a defence to a mortgagee’s claim for possession.
As to the points taken by the borrower:
(1) What is the ‘service’? Under s 19(1) DDA 1995 it was unlawful of the provider of services to discriminate against a person in a number of specified ways. The ‘service’ that is under consideration is that which was actually provided by the lender to the borrower. It should not be defined too broadly, otherwise the ‘reasonable adjustment’ mechanism becomes too general. The service provided was the provision of a repayment mortgage which involved a single loan of a fixed sum, with the property as security, and no facility to increase the amount of the loan. The essence of the borrower’s complaint was that she should have been offered an interest-only mortgage, but that would have been a different service, with a different loan and a different and uncertain security.
(2) Should there have been a ‘reasonable adjustment’? Did the refusal to switch to interest-only make it impossible or unreasonably difficult to access or make use of the service? No. An interest-only mortgage was not the service being provided. In any event, there is no evidence that it was impossible or unreasonably difficult for disabled people to access the service compared to the access offered to other members of the public. Further, it would be unreasonable to require SP to adjust its ‘no conversion’ policy generally so as to offer it to disabled persons. The borrower could not rely on ‘forbearance’ policies, or MCOB. The regulatory framework does not say that interest-only mortgages would amount to imprudent lending.
(3) Was the interest-only mortgage which the borrower says she should have been offered fundamentally different to the mortgage that she had originally agreed? Yes. If the borrower had switched to interest-only, all the guarantees that would have been available with a repayment mortgage would have been absent.
Although this will come as a relief to lenders, the outcome is not particularly surprising. The key issue on a discrimination claim is whether a provider of services has a practice, policy or procedure which makes it impossible or unreasonably difficult for a disabled person to make use of a service he provides to other members of the public. It is difficult to see how a borrower, who contracts for a repayment loan, can allege that it is impossible or unreasonably difficult for him to access the service he contracted for, or that a lender should make a reasonable adjustment by offering to switch to interest-only, which is a fundamentally different service.