Decision in major case in the Supreme Court provides clarification for mortgage industry

For sale sign outside a new build house Print news article

22/10/2014

The Supreme Court, the UK’s highest court, has published its final decision in the long-running North East Property Buyers’ litigation case, providing crucial clarity on priority interests in land.

Walker Morris has represented one of the lenders that have achieved success in the Supreme Court in a significant case which has major implications for the mortgage industry.

The case, dubbed the North East Property Buyers’ Litigation, was heard in March and raised a number of legal issues in relation to sale and rent back schemes (SARB).  In particular the case raises the issue of the priority of interests in land – a crucial topic for mortgage lenders.

The judgment provides much needed clarification and confirmation that individuals that have sold their homes under a SARB scheme cannot establish any interest which would give them priority over the mortgagees rights.

The background to the case was that North East Property Buyers (NEPB) offered to owner occupiers of properties in the Newcastle area, to purchase their property (usually at a discount) and lease it back to them.  In all the cases, the occupiers alleged that NEPB promised them a right to occupy the property in terms of a long term tenancy at either market rent or, in some cases, rent free. A nominee of NEPB would apply for a buy-to-let loan to be secured by a first legal charge over the property. Repossession hearings abounded when NEPB fell into arrears and the former owners faced eviction.

A number of test cases were identified to take forward for the courts to decide pivotal issues about the occupiers’ rights that arose due to the assurances given to them that they could continue to live in their homes for years to come, and whether those rights could take priority to the mortgage lenders’ legal charge over the properties.

In February 2012 the Financial Services Authority reported that most sale and rent back transactions were “unaffordable and unsuitable” and should never have been sold, but by then, in practice the entire market had virtually shut down and SARBs are now very rare.