Bridging Loans – Does A Bridging Lender's Default Interest Rate Constitute An Unenforceable Penalty?

In January 2024 we published an article about the case of the case of Houssein & Ors v London Credit Ltd & Ors [2023] EWHC 1428 (Ch) where the High Court held that a default interest rate in a bridging loan agreement secured by residential property constituted a penalty clause and was unenforceable – "Bridging Lender's Default Interest Rate: High Court Deems 4% Default Interest an Unenforceable Penalty Charge"

In summary, the High Court held that the default interest rate (4% per month) did not protect any 'legitimate interest' of the bridging lender and that it was an unenforceable penalty. The Court further declared that interest at the standard contractual rate (1% per month) was payable by the borrower instead on any unpaid sums after the specified repayment date.