Court of Appeal confirms an incoming mortgage lender can maintain prevailing SVR, and clarifies the limits of the unfair relationships regime

What is the claim about?

The claimant borrowers all took out mortgage products with Northern Rock, prior to that bank's well-publicised failure in the financial crash in 2008.  Some claimants took a 'Together' product, whereby they borrowed under a mortgage as well as under an unsecured loan.  After a period of UK government ownership, their lending was acquired in 2016 by TSB, and TSB has operated those mortgages (and loans) as lender since that date under its 'Whistletree' brand. 

The nub of the claimants' complaint is that, they say, TSB has charged excessively high interest and, in particular, that it has wrongfully applied an SVR to their Whistletree mortgages that is higher than the SVRs that it applies to borrowing by other TSB customers.  The claimants brought their claim on a number of bases, two of which were dealt with as preliminary issues: first whether TSB breached the express terms of their mortgage contracts by charging a Whistletree SVR, rather than another (lower) SVR operated by TSB for a different mortgage book; and secondly whether, if the relationship between the claimants and TSB is unfair, the Court has the power under s.140B of the Consumer Credit Act 1974 ("CCA") to order relief in respect of their regulated mortgage contracts.

The Court of Appeal was therefore asked to determine the meaning and effect of the terms and conditions of the customers' mortgages, and the scope of the Court's power under s.140B CCA.

What were the questions for the Court of Appeal, and what did the Court decide?

The Court of Appeal unanimously determined both questions in favour of the lender.

The express terms issue

The terms of the claimants' mortgages were contained in standard form general conditions, incorporated into personalised offer letters which set out customer-specific details such as the loan amount and term.  Typically, the offer provided for a fixed rate period followed by reversion to a Standard Variable Mortgage Base Rate (or 'SVR').  That was a defined term under the general conditions, meaning "such rate as we from time to time decide to set as the base from which to calculate Interest on our variable rate mortgage loans".  In turn, "we" was defined to refer to "Northern Rock plc and anyone who becomes entitled at law or in equity to any of our rights under the Offer (this will include any person to whom we transfer the Offer under condition 19)."

Under the general conditions, the lender had the power to vary the SVR up or down at any time under condition 7 (although upward variations could only be made where certain conditions were satisfied).  Further, and as contemplated in the definition of 'we' mentioned above, the general conditions provided that the lender could transfer the mortgage, including the right to set the interest rate, to a new lender.  A further power for the transferee to set the SVR arose under condition 19: "Where we transfer to any person the right to set the Interest Rate and we have set the Interest Rate by reference to the Standard Variable Mortgage Base Rate, that person may set the interest charged under the Offer by reference to that person's own (or one of its own) standard variable mortgage base rates."

The Court was asked to decide whether TSB had breached the express terms of the claimants' mortgage contracts by charging them the Whistletree SVR, rather than a (lower) SVR that TSB operated for one of its other mortgage portfolios.

The claimants argued that a transferee was obliged to apply its own pre-existing SVR from the point of transfer, because the definitions of 'SVR' and 'we' entailed that TSB was required to charge the SVR which it applies to “[its] variable rate mortgage loans”. “[Its] variable rate mortgage loans” must mean its pre-existing portfolio of loans at the time of transfer.  The limited circumstance in which that did not apply was where, in the immediate aftermath of a transfer, the transferee decided to continue to charge precisely the same rate as had been charged pre-transfer (that is, the same numerical percentage). However, if the transferee wished to change the inherited SVR, it could only do so by first changing the applicable rate to its own SVR. Only thereafter was the transferee entitled to make further changes to the rate under condition 7.

TSB argued that, upon transfer, as transferee lender it stepped into the shoes of Northern Rock and was entitled to vary the SVR charged to the claimants from the rate it inherited from Northern Rock pursuant to condition 7.  Condition 19 provided that a transferee "may" charge its own (or one of its own) standard variable rates, but did not oblige it to do so.

The Court agreed with TSB's construction.  This was supported by the plain meaning of the words of the contract.  The claimants were not assisted by the 'contra proferentem' rule (ie that, where there is doubt about the meaning of a contract, the words will be construed against the person who put them forward), nor by the similar provision at regulation 7(2) of the Unfair Terms in Consumer Contracts Regulations 1999 (now superseded by section 69 of the Consumer Rights Act 2015) “If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail…”, for the simple reason that there was no real doubt about the meaning of the written terms.

There was nothing in the word 'standard' which implied the SVR had to be a single rate that applied "across the board", and the Whistletree SVR operated by TSB was in any case a 'standard' rate for all Whistletree borrowers.

The Court noted that, in any case and contrary to the claimants' allegations, "the Claimants are no worse off as a result of what has happened since their mortgages were transferred to TSB" – their SVR has remained 4.29% above the Bank of England base rate, as it was pre-transfer.  As Lord Justice Arnold observed, "The Claimants' real complaint is that they have not received the advantage of being moved onto a lower rate which another cohort of TSB borrowers benefits from."

There was therefore no breach of contract, and the claim for breach of the express terms was dismissed.

The CCA unfair relationships issue

Where a Court determines that a relationship between a borrower and a lender is unfair for one of the reasons in s.140A CCA (which relate, broadly, to the lender's actions or omissions, the terms of the credit agreement or a related agreement, or how the lender has enforced its rights), s.140B provides a menu of orders that the Court can make "in connection with a credit agreement" to remedy that unfairness.  Those orders include an order for repayment of sums paid (or the discharge of any sums payable) under the credit agreement or any related agreement, or an order to alter the terms of the credit agreement or any related agreement.  There is no power under s.140B to order payment of damages at large.

Importantly for this appeal, section 140A(5) provides that "An order under section 140B shall not be made in connection with a credit agreement which is [a regulated mortgage contract]".

Most of the claimants' mortgages were regulated mortgage contracts.  It was common ground that where a claimant's only borrowing was under a regulated mortgage contract, no relief could be ordered under s.140B and the regulated mortgage contract was effectively outside the scope of the unfair relationships provisions, because of s.140A(5).

However, the claimants argued that where they have the 'Together' product, made up of an unsecured loan as well as a regulated mortgage contract, the Court had the power to make an order under s.140B 'in connection with' the unsecured loan as the 'credit agreement', and that order could affect the mortgage such as by ordering the repayment of sums paid under the mortgage.  It was assumed for the purposes of answering the question that the mortgages were indeed 'related to' the unsecured loans (although TSB denies this is the case), and that factual question was not before the Court.

The Court derived little assistance from the legislative history of the previous 'extortionate credit bargain' regime, which was replaced by the new and different unfair relationships regime.  The Court considered the policy rationale for excluding regulated mortgage contracts under s.140A(5), and held that the restriction in that section on the Court's jurisdiction is categoric.  The Court cannot make any of the orders under s.140B 'in connection with' a regulated mortgage contract, regardless of whether the mortgage is viewed as the 'credit agreement' or a 'related agreement'. 

Lord Justice Arnold described the claimants' case as “a transparent attempt to avoid the consequences of the statutory scheme by using their unsecured loans as a back door to obtain relief in respect of their regulated mortgage contracts which they accept they cannot obtain by the front door.”

Why does this matter?

The lender's power to set and vary the applicable SVR is a key feature of retail lending, particularly for mortgages where such reversionary rates are common and the lending is typically of long duration.  The Court's rigorous application of the orthodox principles of contractual construction gives clarity that will be welcome to lenders acquiring or disposing of lending portfolios, although each case will turn on the wording of the particular terms in question. 

The unfair relationships regime affords a great deal of discretion to the Court to remedy unfairness.  The Court's decision in this appeal makes very clear that regulated mortgage contracts are simply out of scope of that regime, and cannot be brought in through the 'back door' of a linked credit agreement.  This respects the policy intention that regulated mortgage contracts are subject to a different, detailed regulatory regime under the FCA's MCOB rules.  The Court's reasoning would also apply to the exclusion from the unfair relationships regime of loans made under the 'Bounce Back Loan Scheme' that operated during the COVID pandemic: that exclusion is achieved by wording in s.140A(6) that is materially identical to that considered by the Court in s.140A(5).  This clarity will be welcomed by lenders.

This is also a good example of how well-chosen preliminary issues can be effective in disposing of significant elements of a claim at an early stage, and without the time and cost of a full trial.  The main plank of the claimants' claim has been dismissed, and the scope of their remaining claims materially narrowed by the determination of these two discrete points.

The case is Breeze and others v TSB Bank Plc [2026] EWCA Civ 32. Hogan Lovells partner Louise Lamb and senior associate Tom Devine act for TSB, and Sonia Tolaney KC, James Duffy KC and Tim Goldfarb appeared for the Bank in the appeal (as they did at the trial below).

Authored by Louise Lamb, Tom Devine and Lewis Campbell.