A judge yesterday wiped out a couple's debt of £384,000 which had spiralled out of control from an original loan of £5,750.

Tony and Michelle Meadows, from Southport, Merseyside, faced losing their home after they were taken to court by London North Securities for failing to keep up with repayments on their loan, which had an APR of 34.9 per cent.

The ruling by Judge Nigel Howarth at Liverpool County Court is expected to have far-reaching implications for consumers and lenders alike.

He said: "The claimant must be dismissed. The defendants are not indebted to the claimant pursuant to the agreement and the legal charges do stand redeemed."

The case centred on a number of factors relating to the original loan agreement taken out by the couple in 1989.

The small print of the loan agreement revealed that the couple would be charged a "compounded" interest rate if they ever fell into arrears.

Essentially this meant that the money lenders were charging 34.9 per cent interest on the arrears as well as on the repayments, which soon resulted in the debt growing to an enormous amount.

Judge Howarth said: "Where the rate concerned is as high as 34.9 per cent it seems to me that the combination of factors is so potentially exorbitant that it is grossly so and does grossly contravene the ordinary principles of fair dealing."

Mr Meadows, 45, and Mrs Meadows, 44, who have two children, took out the original loan to install central heating and convert a bathroom into a third bedroom to cater for their growing family.

London North Securities was attempting to take possession of the couple's £200,000 family home.

Speaking outside court, Mr Meadows, a car windscreen salesman, said he felt like "a ton of weight has been lifted off me".

He said: "We're absolutely delighted. You can see the effect this has had on me - I used to have dark hair.

"It has been incredibly hard, but we brought the fight to them and we won.

"It wasn't a wanton spending spree we went on back then, it was just something we had to do at the time. I would advise people thinking of taking a loan to read the small print very carefully."

Mrs Meadows said: "I can't take it in. I'm very happy."

The couple's barrister, Paul Brant, said the decision would be welcome news to other people in serious debt. He said: "This is a lifeline for borrowers who feel there is no hope."