Mortgage offer prevails over inconsistent mortgage contract conditions

In the case of Alexander v West Bromwich Mortgage Company Ltd, the Court of Appeal overturned a High Court decision regarding inconsistent details in a mortgage offer compared with the standard conditions attached to the actual mortgage contract.

The offer letter stated that in the event of an inconsistency, the offer letter would prevail.

The dispute related to the extent of a lender's contractual right to vary the interest rate payable by the borrower and to terminate the mortgage on notice. It arose in the context of a "buy to let" tracker mortgage granted by the West Bromwich Mortgage Company Limited to Mark Alexander.

In the High Court Judge, Teare J, said that terms in the offer letter and the conditions were not inconsistent. He said that they could be read as modifying or qualifying one another. The Court of Appeal overturned this decision.

It held that the inconsistency should be approached without any pre-conceived assumptions (Pagnan SpA v Tradax [1987] 3 All ER 565); and that the offer letter and the conditions were inconsistent and could not sensibly be read together.

The offer document did not contain any suggestion that the mortgage rate would ever be any different to base rate plus 1.99%, so the Court of Appeal found that Mr Alexander’s interpretation of the contract, being that the rate would not be varied, apart from in accordance with the base rate, was entirely consistent with reasonable parties’ general understanding of a tracker mortgage. The Court of Appeal held that the offer letter prevailed, and the inconsistent clause in the building society’s standard mortgage conditions was not incorporated into the contract.

The Court of Appeal also considered the right to call for full repayment of the loan. Clause 14 of the standard mortgage conditions gave the lender an unqualified right to give Mr Alexander one month’s notice requiring him to repay the loan in full, together with any accrued interest and any unpaid charges. The offer document set out that the main purpose or object of the contract was to provide a 25-year interest only mortgage. A standard term which entitled the lender to require repayment on one month's notice without any default on the part of the borrower was inconsistent with that purpose or object. The Court of Appeal therefore held that clause 14 was also not incorporated into the mortgage contract.

The Court of Appeal decided that the terms from the two sets of documentation did not qualify or modify one another; instead the standard clauses in the conditions had the effect of transforming the nature of the product specified in the offer letter to something entirely different. That being the case, the offer letter prevailed, and the inconsistent clauses in the standard conditions were not incorporated into the contract.

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