The Financial Ombudsman Service dealt with over 7000 mis sold mortgage complaints in 2012 and it has been predicted there will be a significant increase in mortgage complaints over the next couple of years due to the tightening of mortgage regulations.
So what are the main types of mis-sold mortgage complaints?
Endowment Mortgages: In recent years there has been a lot of controversy surrounding Endowment Policy “savings plans” where the investment has not ‘performed’ as well as expected, and left home owners with a potential shortfall; meaning they will not have enough funds in the pot to redeem their mortgage in full.
The reason for this happening was because the companies providing or selling those Policies based their rates of return (i.e. how well the fund would perform) on ‘projected rates’. Projected rates of return were intended to illustrate what they expected the Policy would be worth in 10, 15, 25 years time and so on. Sadly, with the downturn in the Stock Market, these investment products have not performed as well as expected, hence homeowners are left with insufficient funds to redeem their mortgage. So not only were borrowers lulled into thinking that they had a cast iron rate of return on their investment which would provide amply funds to pay off their mortgage, they were also encouraged to believe that there would be a substantial surplus on top. This is where you may have a potential mis-sold mortgage claim.
Interest only mortgages: where either no repayment vehicle was set up to repay the mortgage at the end of the term or your broker told you to rely on rising house prices to pay off your mortgage.
Affordability: did your broker fail to ensure that you were not over committing yourself by completing a budget analysis? Were you sold a mortgage that you would never be able to afford in reality?
Self Certified Mortgages: did your broker encourage you to overstate your income, or where you asked to sign a blank application form where the details were completed for you by the broker at a later date? Were you asked to take out a self cert mortgage even though you were able to prove your income with payslips or audited accounts?
Mortgages that go past Retirement Age: were you aware that the mortgage arranged for you took you past retirement age? Did your broker mislead you by putting the mortgage term down in months rather than years? Did your mortgage broker discuss how much your retirement income was likely to be and if you could afford to continue paying your mortgage?
Right to Buy Mortgages: if you were purchasing your property under the Right to Buy Scheme, were all the associated costs explained to you clearly? Were you made to understand that you would no longer be eligible for housing benefit or that you would be responsible for the maintenance costs of your new home? Did you find yourself stuck with high repayments once your initial discount period finished?
Debt Consolidation: if you were remortgaging to repay loans and credit cards, did your broker explain to you that there was a likelihood of you paying far more interest in the long run as your debts would probably be spread over a longer period of time?
Early Repayment Penalties: did your broker advise you of the costs involved in changing your mortgage provider? Many people are unaware that they are tied into their existing mortgage for a number of years, and unscrupulous brokers get around this by encouraging borrowers to borrow additional money to ‘cover all the mortgage fees’ which often include their own extortionate broker fees as well as the early repayment fees charged by the lender. It is not uncommon to see a broker charging in excess of £2,500 for arranging a mortgage, when a reputable broker will charge in the region of £495 – £995 depending upon the complexity of the mortgage.
The FSCS states that it mainly concentrates on claims that involve clients not being advised about the various types of mortgage available to them (often commission hungry brokers will only offer a choice of one), claims where clients were not informed about the potential risks involved with their mortgage product and also where clients were advised to change mortgage and then lost a considerable amount of money because of excessive fees and penalties.