In Forbes v InterBay Funding Limited, the case argued whether a mortgage loan’s capital sum, once called in by a lender, could be treated as arrears and so would be protected during a moratorium.
In 2016, Forbes took out a £1.3m interest-only mortgage from InterBay secured on his property, but he fell into arrears in 2018, with InterBay making a formal demand for repayment of the whole capital sum due plus arrears in 2019.
Forbes applied for a mental health crisis moratorium in 2022, with InterBay starting procession proceedings a year later.
Forbes argued that because the capital had been called in before the moratorium began, it constituted ‘arrears’ and was protected from enforcement action.
The Debt Respite Scheme (Breathing Space) gives someone in problem debt the right to legal protections from creditors. This includes a 60-day standard moratorium and pausing of enforcement action, which can be elongated for mental health crises.
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This case looked at whether the protections offered by the scheme apply to secured debt, especially mortgage capital sums that have been demanded in full.
The Court of Appeal has ruled that the principal sum of secured debt, whether or not called in prior to the commencement of the moratorium, is non-eligible debt and thus neither a qualifying debt nor a moratorium debt.
Jonathan Newman, senior partner at Brightstone Law LLP, said: “The ruling provides welcome certainty for creditors, reinforcing that the moratorium scheme is not intended to restrict enforcement of secured lending beyond missed instalment payments. It confirms that called-in capital does not qualify as moratorium debt, resolving a point that had created considerable uncertainty in practice.”
Luke Holmes, partner at Womble Bond Dickinson, said: “Following the Court of Appeal’s decision, it is now clear that if a lender has demanded repayment of the principal part of a secured debt and it remains outstanding, then the lender may commence (and continue) enforcement action, irrespective of the debtor subsequently entering into a breathing space or mental health crisis moratorium.
“Similarly, a lender may take such action if the right to demand repayment arises after the beginning of a moratorium; for example, due to further arrears accruing or because the term of a loan has expired.”
Joseph England of Quadrant Chambers said the ruling “resolves the important question of whether the capital of a secured debt (in this case, a mortgage) was moratorium debt or not”.
“That question arises not only when lenders routinely call in secured debts but also when the capital sum otherwise becomes due, such as upon the expiry of a loan.
“It may have significant financial and practical effects because the debtor had argued that no interest could be charged on the (much larger) capital sum during the moratorium, as well as on the (smaller) monthly missed interest repayments; and argued that the creditor could not enforce respect of the capital part of the debt and therefore gain possession to realise its security.
“Practitioners may also note the strict view take by the court, in accepting InterBay’s submissions that it should not hear Mr Forbes’ second ground appeal, to raising points not before the courts below and adding new material into ‘replacement’ skeletons, which expand the scope of an existing ground of appeal,” he explained.
