Owner is home free from runaway loan: A mortgage that just kept on growing has been ruled invalid. Sue Fieldman reports

A LOAN COMPANY that was charging an interest rate of 60.1 per cent has lost its battle to repossess a borrower's home. A court has declared the mortgage invalid.

The borrower's loan, which had escalated from pounds 18,500 to more than pounds 175,000 in just five years, is completely wiped out. He is mortgage-free.

The victory opens the doors for other borrowers who took out mortgages with this company, or in similar circumstances with other companies, to check whether they can challenge the terms of their loans.

The Independent first highlighted the predicament of Robert Leadbeater, of Eastleigh, Hampshire, in September 1991. He had been in financial difficulties when a broker arranged a four-month bridging loan on his property, on the basis that a remortgage would materialise.

The loan was for pounds 18,500 at an annual percentage rate of 60.1 per cent.

The original loan company was North Mount Securities, but on the day of completion, the debt was assigned to another lending company, Huntpast. Martin Brand, a partner in the solicitors Brand Montague, is a director of North Mount and Huntpast.

The loan was completed in August 1986. As part of the pounds 18,500, Mr Leadbeater had to pay four months' interest in advance, amounting to pounds 2,960, a broker's arrangement fee of pounds 4,500 - which, unknown to Mr Leadbeater, included Brand Montague's legal costs of pounds 450 - and a pounds 125 premium for insurance.

After repaying the existing mortgages, Mr Leadbeater received just pounds 65.49 from the pounds 18,500 loan.

He was supposed to pay pounds 740 a month to cover the interest, but was unable to meet these repayments. Moreover, the remortgage application fell through.

Meanwhile, the loan was rising at an astronomical rate. By September 1991 the amount outstanding was more than pounds 175,000. His house was worth about pounds 40,000. Huntpast started proceedings to repossess the property.

Last week Mr Leadbeater won the final legal battle to get the agreement declared invalid. The court agreed that the mortgage was of no effect and the agreement was unenforceable. The mortgage debt has been wiped out. Mr Leadbeater does not owe a penny and Huntpast has to hand back the deeds of the property.

Huntpast made substantial profits in its heyday. For the years 1986 to 1989 profits were well over pounds 1m.

Huntpast was not in court to hear the decision. The company went into liquidation in January. Mr Brand resigned as a director at the same time.

Gregory Hine, of the solicitors Michael Hayes Hine & Co, acts for Mr Leadbeater. He says: 'The significance of the case is that the court decided that the four months' interest in advance, the pounds 125 insurance premium and the legal fees of pounds 450 were all part of the total charge for credit. If you deduct these items from the amount of the loan of pounds 18,500, you are left with pounds 14,965.'

The court said that the agreement was a regulated agreement - less than pounds 15,000. Huntpast was unlicensed under the Consumer Credit Act for these purposes. The agreement was therefore unenforceable.

Challenging a loan agreement is never easy. Bob Imrie, assistant county trading standards officer for Devon, says: 'It is up to the borrower to apply to the court to have it reopened. Just because you have sold the property should not necessarily limit the right.

'If you are concerned, take your agreement to a trading standards department. They should be able to give you initial advice, particularly as to whether the agreement is regulated.'

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