Mortgages — creation and priorities

A mortgage is a proprietary security interest where the mortgagor grants rights over land to secure a loan, retaining the equity of redemption — the right to recover unencumbered title on repayment. Legal mortgages require creation by deed as a charge by way of legal mortgage under LPA 1925 s 87; equitable mortgages arise through equitable charges or mortgages of equitable interests. The equity of redemption is protected from 'clogs and fetters' — any agreement preventing or unduly fettering the right to redeem is void. This principle exists because equity historically intervened to protect borrowers from forfeiture, establishing that 'once a mortgage, always a mortgage' regardless of contractual terms purporting to convert the security into an absolute transfer.

Salt v Marquess of Northampton [1892] AC 1: House of Lords held that provisions allowing the mortgagee to purchase the property on default are void as clogs on the equity of redemption. Foundational authority establishing that the mortgagor's right to redeem cannot be fettered by collateral advantages.

Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441: Court of Appeal upheld a 40-year postponement of redemption in a commercial mortgage between sophisticated parties. Shows the no-clog rule applies more flexibly to commercial than consumer mortgages.

Jones v Morgan [2001] EWCA Civ 995: Court of Appeal struck down a mortgagee's option to purchase at a future date. Confirms modern courts still apply the no-clog rule from Salt v Northampton.

Thompson v Foy [2009] EWHC 1076 (Ch): High Court held that under LRA 2002, a registered charge takes priority over unregistered interests of which the mortgagee had no actual knowledge. Leading case on post-2002 priority rules for registered land.

Courts first determine whether a valid mortgage exists: for legal mortgages, check for deed creation under s 87 LPA 1925; for equitable mortgages, identify the type (equitable charge or mortgage of equitable interest). Next, examine any provisions potentially clogging the equity of redemption — options to purchase, postponements of redemption, or collateral advantages. Apply the no-clog rule strictly for consumer mortgages but flexibly for commercial arrangements between sophisticated parties. For priority disputes, apply LRA 2002 s 48 for registered land (charges rank by registration order) or Land Charges Act 1972 for unregistered land. Common triggers include mortgage terms granting purchase options, lengthy redemption postponements, or competing security interests over the same property.

Students frequently treat mortgages as transfers of ownership rather than security interests — the mortgagor retains legal title under s 87 charges. Many apply the no-clog rule uniformly without distinguishing commercial from consumer contexts following Knightsbridge. A critical error is applying pre-2002 priority rules to registered land — LRA 2002 s 48 governs with its order-of-registration principle. Students often ignore that unregistered land follows different rules under the Land Charges Act 1972. Finally, many overlook statutory consumer protections under FSMA 2000 and FCA rules that supplement common law doctrines.