How couple's £5,750 home loan soared to £394,000

A couple who took out a £5,750 home improvement loan face losing their house after their debt soared more than £384,000.

A couple who took out a £5,750 home improvement loan face losing their house after their debt soared more than £384,000.

Tony and Michelle Meadows, from Southport, Merseyside, took out the loan in 1989 with an annual percentage rate of 34.9 per cent, repayable over 15 years, Liverpool county court heard yesterday.

But within months, the couple began to struggle to make repayments and made none for one period of three years. The case hinges on whether the credit agreement they signed was extortionate.

But the court heard the couple were a "poor credit risk" and the 34.9 per cent they agreed to was the prevailing rate for high-risk borrowers then.

Mr and Mrs Meadows, who have two children, originally took out the loan with a company called Home Loans Northern, but the debt was later bought by London North Securities (LNS).

Neil Levy, for LNS, which wants to repossess the £200,000 house to help pay arrears, claims the couple did not take out the original loan for home improvements, but to pay off arrears on their mortgage.

He said: "If you have a mortgage, nothing like the rate seen here, and you do not make payments for three years and over you would expect there to be some considerable amount balance. "

In 1990, Mr Meadows, a salesman, and Mrs Meadows, a childminder, were served a repossession order if they failed to pay their arrears.

Judge Howarth described Mr and Mrs Meadows' decision to take out the "home improvements" loan as "Hobson's choice".

He said: "It is a Hobson's choice, you are told a possession order will be executed and the only way you can get out is to pay all the arrears at once. One of the genuine purposes is to protect your home at any cost."

The court heard that Mr and Mrs Meadows were already struggling to pay their mortgage when they were granted the loan from Harvey Collis's LNS.

Paul Brant, for the Meadows, asked Mr Collis whether he believed it was his responsibility to make sure his clients could repay their debt. Mr Collis replied: "It is up to the borrowers to decide whether they could meet their ongoing commitments."

The case continues today.