Cheltenham & Gloucester BS v Norgan [1996] 1 WLR 343

Key points

  • The starting point for determining the reasonable period under s36 AJA 1970 is the full term of the mortgage
  • The most favourable period to the mortgagor must be taken

Facts

  • D bought her husband’s half share in their dwelling house for 90k by means of a mortgage with a building society
  • C, which bought over the building society, obtained a possession order in 1990 but was it repeatedly suspended, with the arrears remaining substantial
  • In 1993 to C applied to issue a possession warrant, the judge determined that 4 years is the reasonable period but since D was unlikely to make prepayments within that period, there should be no delay
  • D appealed, on the ground that the starting point for the reasonable period should be length of the mortgage

Held (Court of appeal)

  • Appeal allowed, case remitted to county court
  • The judge had erred in adopting a repayment period of 4 years unrelated to the outstanding term of the mortgage of 3 years

Waite LJ

  • The starting point for a reasonable period is the full term of the mortgage and the court asks whether it would be possible for payment of arrears by installments over that period
  • Taking the period most favourable to the mortgagor (full term of mortgage) at the outset means that if her hopes of repayment prove to be ill-founded the mortgagee can be heard with justice to say that the mortgagor has had his chance and s36 should not be employed repeatedly

Evans LJ

The following considerations to determining the “reasonable period”

  • (a) How much can the borrower reasonably afford to pay, both now and in the future?
  • (b) If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?
  • (c) What was the reason for the arrears which have accumulated?
  • (d) How much remains of the original term?
  • (e) What are relevant contractual terms, and what type of mortgage is it, i.e. when is the principal due to be repaid?
  • (f) Is it a case where the court should exercise its power to disregard accelerated payment provisions (section 8 of the Act of 1973)?
  • (g) Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest
    • (1) over the whole of the original term, or
    • (2) within a shorter period, or even
  • (3) within a longer period, i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest or not?
  • (h) Are there any reasons affecting the security which should influence the length of the period for payment?