Definition of REDEEM

[sailingman]

I have searched the net for days looking for a solution to my problem with a £55,000 interest-only personal loan to very good friend. We are in dispute about weather I can terminate the agreement and raise the interest rate after the 2009 crash to 0.5%. I think the original agreement by his solicitor was confusing. I quote the very short text we have:

The Lender has advanced to the Borrower the sum of £55,000 (Fifty Five Thousand Pounds) on security of the property mentioned in paragraph 2 above. Interest shall be paid thereon by the Borrower at the variable rate of 1.5% over the base rate of National Westminster Bank for the time being in force and the mortgage shall be redeemed within the period of two years from the date hereof and in the event of redemption not taking place within the aforesaid two year period the Charge will continue remaining in full force and effect upon the terms agreed herein.

It would appear that 'redemption' can mean different things for Lender and Borrower?

As Lender my rights in this agreement are if I had asked for the money to be paid back at the end of the first two years then I could cancel the agreement - and therefore make a new one.

As Borrower his rights appear to be that if he has not 'Paid Back' the mortgage within the two years the loan can continue at the same rate.

This would seem a ridiculous open-ended contract. The borrow's rights should be subject to the Lender's rights as above not being pursued first - and then every two years that the loan continues.

This issue has been raised by his accountant 9 years after the original agreement because we both forgot the interest rate was tied to Base Rate. He was in charge of paying me by Standing Order. In 2015 I did lend him £5,000 at a new rate of 4% fixed.

I welcome some thoughts on this conundrum.

[R0b]

Hello

As you have only given us a paragraph from the agreement we can only base our views on what we see. It would appear that the paragraph seems to be an open ended arrangement for repayment and there also seems to be a definition for 'Charge' but we don't know what that definition is. If the agreement was drafted by his solicitor and (I assume) you didn't take legal advice then it has clearly been drafted in favour of the borrower.

Is there any provision that allows you to demand the outstanding amount at any time?

As for the interest rate, it says a variable rate of 1.5% plus the base rate of NatWest whatever that may be from time to time. So for example it could be 0.5 then it might go up in 2 years time to 1.5% so then the interest rate will change again.

Doesn't look very well worded to me.

[sailingman]

......Doesn't look very well worded to me.

Thanks Rob ...this is the only text relating to the Loan.

Other sub sections relate to keeping the property insured - personal liability if the sale of house does not cover the loan - and a bonus cash payment when the house is sold because of the very low 6.5% interest that we originally agreed to. He had a very bad credit rating and was willing to pay 10% interest rate which I knew he couldn't afford.

His accountant has recently demanded that the interest rate has been at 2% since 2009. If we had both agreed a reduction of his monthly payments when the interest rate first fell then at the end of the first two year loan agreement I would have called in the loan - but I would have continued it with a new agreement at a rate of 5% for two years.

It doesn't help that I live a lot of the time on a boat in the Med and don't know nor care what the interest rate is doing. 0ooops there goes all my sympathy! The 1.5% over base was added by his solicitor at the last minute on the final copy that was sent to me on the boat - without first sending me a draft copy. Indeed he said in his letter to my friend ..."if you're happy with the changes just sign it ......and send it to (me) for signature." It seemed reasonable for both of us at the time.

[R0b]

His accountant has recently demanded that the interest rate has been at 2% since 2009.

Look at the NatWest link below on the change in base rate for the Bank of England - you will see that there has been three changes in the base rate in 2009, so for the month of January the rate would have been 3% then February it would be 2.5% and thereafter it would have continued to 2% until Aug 2016 which would have dropped to 1.75% and then raised to 2% in November 2017.

Usually the lender's base rate is the same as the BoE's rate but I can't see anything from NatWest's website that shows their base rate is different so I am assuming it is the same.

https://www.natwestinternational.com...base-rate.ashx

[sailingman]

His accountant was using our agreement of 1.5% over base rate which meant he was paying 6.5%. The Base Rate very quickly went down to 0.5% making it 2% he should have been paying.

But if you have an agreement - or is it a contract - and the lender fails to change the standing order they set up, are they in Breach of Contract? I'm on a boat and I can't effect the change. If it was a direct debit and I failed to reduce the amount I took from his bank then I would be at fault. The base rate went down 5 times from 2008 to 2009, so he had 5 chances to change his monthly payment. This must have been a common problem for many loans back then, but I have failed to find anywhere online to suggest where we stand.

I have made an offer in retrospect to reduce the loan to 2% during the first two years and then back up to a fixed 5%. He won't even talk to me via the phone or email saying he has to talk to his solicitor. Some friend. This has been going on for weeks.