UK Social Security and Child Support Commissioners' Decisions

[2004] UKSSCSC CCS_1049_2004 (15 November 2004)

PLH Commissioner's File: CCS 1049/04
 


CHILD SUPPORT ACTS 1991-1995

APPEAL FROM DECISION OF APPEAL TRIBUNAL

ON A QUESTION OF LAW

DECISION OF THE CHILD SUPPORT COMMISSIONER

Appellant: [the absent parent]

Respondents: (1) Secretary of State

(2) [the parent with care]

Appeal Tribunal: Ashford

Tribunal Case Ref:

Tribunal date: 18 August 2003

Reasons issued: 27 November 2003

[ORAL HEARING]

1. This appeal by the father and absent parent is dismissed, as in my judgment there was no material error of law in the decision of the Ashford tribunal sitting on 18 August 2003 to warrant setting it aside. I therefore confirm that the child support assessment of the weekly maintenance the father is required to pay for his daughter from the effective date of 27 March 2002 is to be recalculated in accordance with the tribunal's directions, and the case is remitted to the Secretary of State for that to be done.
2. On the question of the father's allowable housing costs, which was the only one of those directions in dispute before me, I confirm specifically that:

(1) the tribunal was right to direct that the monthly amounts to be used in calculating his exempt and/or protected income under schedule 3, Maintenance Assessments and Special Cases Regulations 1992 SI No. 1815 were limited to the minimum monthly payments he was contractually obliged to pay to his mortgage lender; and that the correct monthly figure for this at the effective date was to be taken as £450.96, the minimum monthly payment shown in the lender's statement of his mortage account as at 5 April 2002 (the slight difference in dates is agreed to be immaterial for this purpose); and

(2) the tribunal was further right to direct that the interest allowable as exempt and protected income had to be calculated on the actual outstanding balance of his loan, not the maximum loan limit wrongly used by the decision maker in the original calculation which had the effect of allowing him far more for interest than he was actually paying.

3. The tribunal could not give more detailed instructions as to how that last direction should be carried into effect, as the true figure for the outstanding balance at the start of April 2002 was not disclosed in the evidence before them. However from the further figures supplied by the father in this appeal, recently confirmed by the lender, I can now direct that for this purpose the actual monthly interest payable by the father on the loan balance outstanding in April 2002 was £317.89, instead of the £417.63 assumed in the original calculation shown on page 11. Accordingly, of the £450.96 monthly payment he was contractually obliged to make at that time £317.89 was mortgage interest counting towards exempt and protected income under paragraph 1(b) of schedule 3 to the regulations, and the balance of £133.07 was a periodical payment he was required to make to reduce the capital outstanding, counting as exempt income under paragraph 3(2). Applying paragraph 16 of the same regulations to convert those amounts to their weekly equivalents the housing costs allowable to the absent parent at the effective date should have been £73.35 for interest plus £30.70 for capital, instead of the £96.38 plus £38.25 allowed in the Secretary of State's original calculation.
4. I held an oral hearing of the appeal which had been directed at the appellant's request. He appeared and conducted his own case in person as did the girl's mother. The Secretary of State was represented by Ms S Das of the solicitor's office, Department for Work and Pensions.
5. This case concerns the maintenance the appellant ought to have been paying since 27 March 2002 for his daughter, who is now 13 and lives with her mother. In the course of his appeal to the tribunal against the original assessment of £96.73 per week various mistakes were identified that needed to be corrected and there was no dispute that a recalculation had to be done. In its decision dated 18 August 2003 at page 96 the tribunal gave five separate directions on different aspects of the recalculation, of which the only one still in issue before me is the final one relating to the calculation of the absent parent's housing costs. The relevance of such costs is neatly summarised in the recent judgment of Holman J in Pabari v Secretary of State [2004] EWCA Civ 1480 paragraph 2 as follows:

"As part of the overall process of making a maintenance assessment under the Act, it is necessary to calculate the 'assessable income' of each parent. This is his or her net income minus his 'exempt income, calculated or estimated in accordance with regulations ... '. It is also necessary to calculate the absent parent's 'protected income' since, if his disposable income after deduction of the maintenance would be less than his protected income, the maintenance assessment is adjusted."

Under the regulations already referred to, mortgage interest payable is allowed as both exempt and protected income; periodic capital repayments, to the amount a parent is required to make under the terms of the mortgage, are exempt but not protected income.

6. The dispute centres on the terms of the appellant's "Current Account Mortgage" arrangement with his lender, which is one of a relatively recent type where bank mortgage and current accounts are combined. The main question for the tribunal was whether the monthly payments allowable in calculating his housing costs should be those originally set which had been calculated by reference to the full initial amount of the loan, or only the minimum he was currently required to pay which was calculated on the actual balance currently outstanding, a substantially lower figure than the account limit because of extra money he had chosen to pay in. Those two monthly amounts as notified by the lender on the appellant's account statement as at 5 April 2002 (page 80) were called the "Planned Payment" (£583.38) and the "Minimum Payment" (£450.96). The tribunal's decision about the interest and capital allowable was as follows (page 96):

"5. The Decision Maker was wrong to use the loan limit as [the appellant's] outstanding balance. Furthermore, by using the planned payment sum of £583.38 in the housing costs calculations, the Decision Maker has used a sum not all of which is "necessarily incurred for the purpose of purchasing…or otherwise securing possession of the home…". The correct sum to use is the minimum payment of £450.96 (see page 80)."

7. In her statement of reasons sent to the parties on 27 November 2003 (pages 98 to 100) the tribunal chairman noted that it was clear that the original decision maker carrying out the assessment calculation had included in the absent parent's exempt income an assumed monthly interest payment on the whole of his maximum allowable loan limit of £85,085.85 at 5 April 2002 shown on the statement instead of the actual balance currently outstanding, and a further amount for capital based on the £583.38 "planned payment" instead of the minimum. The appellant having failed to attend the hearing, the chairman noted and accepted evidence given by the girl's mother that she had been aware of this mortgage at the time the two of them were together and that

"The planned payment was only a calculation as to what was affordable. It was down to each individual to pay as they wished, provided they met the minimum amount required. This mortgage account operated as a bank account as well. ... The nature of this mortgage is that [the appellant] would not be locked into the planned payment, although it was [the mother's] belief that he always actually pays this higher figure because he wanted to pay off his mortgage early."

8. The chairman then referred to the condition in paragraph 4(1)(a) of Schedule 3 to the regulations that housing costs are to be included only where "they are necessarily incurred for the purpose of purchasing, renting or otherwise securing possession of the home ..." as emphasising the essential purpose of the expenditure. She recorded as a fact that in this case the father's entitlement to the property was assured if he met the minimum payment requirements, and that "Once entitlement is assured, the level of payment is down to him". Consequently she held that the difference between the planned and minimum payments did not count as eligible housing costs for the purposes of schedule 3, because it was not necessary to continue to make the higher level of payments for the purpose of purchasing or otherwise securing possession of the home: the correct sum to use was the minimum payment of £450.96.
9. The father appeals on the ground that the tribunal misdirected itself and was wrong to rely on what it had been told by the mother about the way his mortgage worked when she had not been party to it. He explained how he had in fact operated the account:

"When I took out the mortgage I had to pay the planned payment. I then built up savings in the account as interest was calculated daily on what effectively was my "overdraft". In this way I saved interest on my mortgage, rather than earning interest on my savings if I had kept them in a separate savings account. The interest I saved was greater than the interest I would have earned. At any time I can withdraw my savings from the account".

The amount of his mortgage should therefore have been taken as the maximum loan limit figure, not the current balance outstanding on which interest was actually calculated as this reflected his savings and not just his mortgage. The whole amount of the original loan had been for his house purchase and it was therefore wrong to describe the payments he was continuing to make at the originally agreed planned rate as not necessarily incurred for that purpose. Consequently the monthly amount of the "planned payment" as shown in the lender's statement as at 5 April 2002 was the one that should have been used in calculating his housing costs for the purposes of child support. However he did not put forward any argument that the amount included for interest should be more than the actual amount he had to pay, confirmed on his own figures as £317.89 for the month in question. The effect of his argument was therefore that the difference between this and the planned payment figure of £583.38, or £265.49, ought to have been allowed to him as a capital repayment and exempt income under paragraph 3(2) of Schedule 3. He (rightly) did not pursue an earlier complaint made in his notice of appeal that the tribunal ought not to have proceeded with the case at all in his absence when he rang up on the morning of the hearing saying he was too busy to attend.

10. On behalf of the Secretary of State Ms Das was willing to agree that the tribunal had been at fault in not investigating for itself the terms of the mortgage more thoroughly and calling for the actual documents. However when the further documents produced in the course of the present appeal were taken into account, they showed the decision to limit the total housing costs to the minimum contractual payment was actually the right one, as £450.96 was all the father was required to pay as at 5 April 2002 to comply with his mortgage conditions and avoid default: any higher continued payment was in effect at his option and therefore not allowable as "exempt income". The tribunal ought also to have identified how much of that amount was mortgage interest, as "protected income" had to be calculated separately; which should have been done by applying the 5.89% annual mortgage interest rate shown in the account statement to the actual balance of the loan outstanding at the effective date.
11. The mother summed up the answer to her former partner's appeal succinctly, and in my view entirely accurately, by saying that her daughter's maintenance should be based on what the father was obliged to pay for his housing costs, not what he might choose to pay. All he was contractually obliged to pay for the month in question was the £450.96. His suggested calculation of some higher amount he might still have been contractually required to pay in accordance with the original plan if he had not in fact been reducing his debt more quickly was therefore hypothetical and irrelevant.
12. Having myself seen the mortgage documents produced by the father and heard his explanation of the way his current account mortgage operated, I am satisfied that the mother's evidence and the tribunal's understanding based on this and the documents it did have were both entirely accurate. This kind of account is just an ordinary bank mortgage combined with a current account in constant overdraft. The opening debit entry is the initial amount advanced for house purchase and a term is agreed for its repayment, in this case 25 years. Interest at the bank's published rate for this type of lending is calculated on the day to day balance owing and debited to the account monthly. A "loan limit" is set which is the maximum balance allowed to be left owing. If the mortgage is of the standing or endowment type the loan limit for the lifetime of the loan (apart from any further advances) is the original amount of the advance, so that during the term the borrower need only make payments into the account to cover the monthly interest charged but must repay the whole of the principal at the end. For a repayment type of mortgage such as the one in this case, the loan limit starts at the amount advanced and is progressively reduced over the agreed lifetime of the loan so as to require the principal debt to be paid off to zero at the end of the term. For such a mortgage a "repayment plan" is calculated at the outset and the "planned payment" is the level monthly payment of combined interest and capital the borrower would (apart from other movements on the account) need to make over the life of the loan to pay off the whole of the principal and interest by the end of the term and stay within the loan limit in the meantime. The monthly "planned payment" is recalculated with each interest rate change so as to keep the planned repayment schedule to the original term.
13. Of course a major feature of this type of account is the ability to use it as a current account and pay extra money in from time to time to reduce the day to day balance owing and thus the mortgage interest actually charged each month. The appellant told me he had his monthly salary paid into this account and used it as his only or main bank account for ordinary drawings, cheques and direct debits, and no doubt many other people with such accounts use them in the same way. In this case, the salary and other payments made into the account since it was opened in 1998 had been substantially more than needed to keep paying off the mortgage in accordance with the original plan. By April 2002 the difference between the loan limit, then down to some £85,085.85 from the original loan of £90,000, and the actual debit balance outstanding was about £20,000. This the appellant viewed as in effect his "savings", parked temporarily in his mortgage account until he chose to draw them out, which he was free under his mortgage terms to do at any time up to the current loan limit on the account.
14. The mortgage documents produced to me confirm that the tribunal was quite correct in finding that in those circumstances he was not contractually obliged to continue making monthly payments at the "planned payment" rate which was now substantially higher than needed to pay off his outstanding mortgage debt evenly over the rest of the agreed loan period. All the borrower is obliged to pay in those circumstances is the lower monthly amount of the "minimum payment", defined in the relevant Offer Conditions at page 149 as follows:

" 'minimum payment' for a repayment mortgage this is the monthly payment of capital and interest required at any time to achieve repayment by the end of the Term assuming that you made this same payment each month. ...

If you have made extra payments into your account the minimum payment will be less than the planned payment. The minimum payment is the "Monthly Payment" for the purposes of the Mortgage Conditions. You are obliged to make at least the minimum payment each month on or before your Monthly Date (as defined in the Mortgage Conditions)."

A further clause headed "Default" makes clear that it is the minimum payment, and not any greater amount, that is the required payment into the account in any month to comply with the mortgage conditions and avoid triggering default action by the lender.

15. That appears to me exactly to confirm the mother's evidence and the tribunal's understanding of the meaning and effect of the "Minimum Payment" of £450.96 specified in the account statement produced by the lender: it was this amount, and no more, that the father was contractually required to pay into the account in April 2002 by way of a combined instalment of interest and capital under his mortgage conditions. In the course of oral argument before me, the father agreed that it was his own option whether to make the minimum payment or anything more. However he maintained, with the aid of a letter from the lender which showed that the monthly reduction in his overall loan limit was (of course) greater than the capital repayment element in his minimum payment, that it was the reduction in loan limit that should be counted as the capital "repayment" he was making for the purposes of schedule 3 paragraph 3(2) since this showed the agreed rate at which his mortgage was required to be paid off.
16. I do not consider there is any ground for saying that the tribunal misdirected itself in holding that the total amount the father was required to pay for mortgage interest and capital repayment in April 2002 was limited to the "minimum payment" of £450.96 specified by the lender itself at page 80. Although the minimum payment for any month is calculated on the assumption that future monthly payments into and out of the account for non-mortgage purposes will in effect cancel one another out, and there may have to be a recalculation for future months if that is not what happens in practice, there can be no doubt that the actual contractual obligation that has to be met is to make the minimum payment for the current month and no more. That is placed beyond doubt by the amplified documents now before me but was also the effect of the documentary and oral evidence before tribunal, which was in my judgment sufficient to support its conclusion: in particular the lender's statement at page 80 which clearly identified the minimum monthly payment required as at 5 April 2002. I do not agree it was an error of law for the tribunal not to have insisted on adjourning to obtain and scrutinise the mortgage documents when the father had failed to provide these as he could easily have done, and merely sent a message at the last moment that he was too busy to attend. Even if it was an error, it was one without consequence as the documents confirm the other evidence.
17. By the end of the hearing before me it was I think common ground, and in any case is undeniable, that the original calculation by the Secretary of State's officer had as the tribunal said been based on the wrong figure since it gave the appellant credit for interest on the whole loan limit when he only had to pay it on the much lower amount actually outstanding. Again it seems to me that the tribunal was entirely accurate and correct in law in the directions it gave about this: namely that it had been wrong to use the loan limit as if it had been his outstanding balance. Since the tribunal was not given the correct figure by anyone and the father had failed to disclose what the true balance actually was (the actual figure having been unhelpfully blanked out by someone on the statement at page 80), I do not think it is right to criticise it for having stated the point of principle and left the matter there. Under that direction, it was and is for the Secretary of State when doing the recalculation to ascertain the monthly interest actually payable as part of the minimum required payment of £450.96. As the actual interest charged for April 2002 has now been disclosed by the appellant (£317.89: page 159) that figure can simply be used in implementing the tribunal's direction. (The exact figure for the outstanding balance at 5 April 2002 has still not been divulged but by my calculation that amount of interest at 5.89% implies an average balance over the month of £64,765.36, as opposed to the £85,085.85 he originally claimed and the Secretary of State accepted for the calculation of allowable mortgage interest. For the sake of completeness I also record that there is no suggestion in this case that any part of the outstanding balance was attributable to other borrowings apart from house purchase).
18. So far as the tribunal's stated reasoning is concerned I think it was correct to say that monthly payments in fact made into the account in excess of the stipulated minimum were not costs "necessarily incurred" within paragraph 4(1)(a) of schedule 3 in the sense that the appellant had no liability to make them. In my view however the real answer is the simpler and more direct one that for April 2002 only £317.89 interest was payable by him and only £133.07 was required of him as a capital repayment under the terms of his mortgage, so that sums in excess of these amounts were not eligible housing costs under paragraphs 1 or 3 of the schedule at all.
19. For those reasons, the appeal is dismissed and the case remitted to the Secretary of State for the recalculations to be made in accordance with the tribunal's directions and the figures I have given. Any further corrections on other matters that have been drawn to the Secretary of State's attention in the meantime ought of course to be incorporated into the recalculations, to the extent that he is satisfied they are needed, so that the redetermined assessment can be a correct and final one after all this time.

(Signed)

P L Howell

Commissioner

15 November 2004