Mortgage capital not a qualifying debt in a breathing space moratorium
The County Court held that mortgage capital that had become due because of mortgage arrears was not a qualifying debt for a mental health crisis moratorium (MHCM). Including the mortgage capital in the moratorium was a ’material irregularity’ and the MCHM was cancelled in respect of this sum.
Regulation references in this summary are to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
Background
Bluestone had obtained a possession order as a result of mortgage arrears. The order had not been enforced.
Mr Stoute had entered a moratorium under the Debt Respite Scheme that included all the sums owed under the mortgage with Bluestone. The sums comprised both arrears of instalments and capital that had become due under the mortgage agreement as a result of Mr Stoute breaching the payment terms.
Bluestone applied to cancel the moratorium on the grounds that the capital balance due was not a qualifying debt under regulation 5. This was a ‘material irregularity’, therefore the moratorium should be cancelled under regulation 17(1)(b).
Court’s decision
Regulation 5(3) sets out a list of debts that could be qualifying debts. It includes debts that are due under a court order. It could still be ineligible if it falls under regulation 5(4).
To be a non-eligible debt under regulation 5(4)(a), a debt must not "amount to arrears in respect of secured debt".
The court concluded that the natural meaning of this regulation was that the mortgage capital was not a qualifying debt. This was because it was a “secured debt which does not amount to arrears in respect of secured debt” (regulation 5(4)(a)).
This was a ‘material irregularity’ under regulation 17(2)(b) and the mental health crisis moratorium would be cancelled in respect of the non-qualifying debt under regulation 19(3)(a).
Request to enforce the possession order
In light of the overall debt now being partly non-eligible mortgage capital and partly arrears of mortgage instalments still subject to the moratorium, the court considered Bluestone’s request for permission to enforce the possession order.
The court held that the possession order was a judgment or order regarding a moratorium debt. The court also held that enforcing the possession order would amount to enforcement that is not permitted under regulations 7(7)(b) and (c). It followed that permission was required to enforce the possession order.
The court adjourned its decision on whether to grant permission to enforce.
Evidence of eligibility for the moratorium
The court also made an order to disclose medical and financial information to help determine whether Mr Stoute met the eligibility criteria for a mental health crisis moratorium and, if so, whether the court should allow enforcement of the possession order under regulation 7(5).
Comments
The judge accepted there were problems with the judgment. For example, regulation 5(4)(a) - stating that a “secured debt which does not amount to arrears in respect of secured debt” is a non-qualifying debt - served no purpose.
It is also worth noting that this is a County Court decision and not binding on other courts, though it could be highly persuasive.
Debt advice providers who include the capital balance due on a mortgage in a mental health crisis moratorium or standard breathing space moratorium must be prepared to deal with challenges made by lenders that could progress to court.