Can You Make a Mis-sold Mortgage Claim?
If you have been sold a mortgage that you couldn’t afford, then you could be eligible for compensation. Take a look at our comparison table to find a company that can help you.
For the majority of families, getting a mortgage is the biggest commitment that they will make in terms of their finances.
Giving mortgage advice is something that is now regulated by the Financial Services Authority, and that is regulated by the Financial Conduct Activity. Since October 2004, mortgage advisers are required to ensure that any advice they give out is suitable for the person they are speaking to. This includes whether you, as a customer, are able to afford the mortgage and whether that mortgage will meet your needs, as well as whether it is the most suitable option out of the mortgages that are accessible to that adviser.
Sadly, many people were given bad advice. People who were given incorrect or misleading advice have a number of options open to them, and if you have been mis-sold a mortgage or a related product then we might be able to help you. The Financial Services Authority published a paper titled ‘Mortgage Market Review: Responsible Lending’ in July 2010, and this paper identified the mis-selling of mortgages as a serious issue. The issue came to a head during the run-up to the recession.
While there are millions of people who do have mortgages that they are happy with, a large number of people are now left in a desperate situation thanks to poor lending practices from mortgage companies. Many borrowers are now struggling to meet their repayments, and are faced with significant mortgage arrears or the threat of repossession.
How is it that this occurred?
Well, in response to a trend of an increase in mortgage complaints, the FSA discovered that lenders and brokers had been breaking the rules. Many were lending money to vulnerable people who were not really able to service the debts that they were taking on.
How Could a Mortgage have Been Mis Sold?
The mortgage adviser may not have taken into account future changes to interest rates, and how that may affect a borrower.
For example, if someone were to take out a fixed-rate mortgage, then their payments would have been set at a fixed amount for that given period. When that period came to an end then the payments would change to whatever the standard rate was that was offered by the lender. This meant hat your payments might increase substantially. IF the lender failed to assess the increases that you could face, then the mortgage could have been mis-sold. The mortgage adviser is obliged to take into account any potential changes in your circumstances and to the required payments.
Take the example of someone who is 45 years old, and who wants a 25 year mortgage. This means that if they retire at the age of 65 then they will still have to pay for another 5 years of the mortgage. The adviser should establish whether or not you will be able to afford the mortgage upon retirement. If you took a re-mortgage out, because you had other debts, then the adviser should look at the costs of the loans that you will incur, and the longer repayment period, as well as whether there might be any implications to taking an unsecured loan and turning it into a secured loan.
Many people do make that choice. For example, they may take a short term car loan and add it to their mortgage. This can have the beneficial effect of reducing the amount that you pay each month, but it means that you’re taking a loan that is supposed to run for just three years, and making it run for 20 years or more. You will be paying interest over that period so there is a high chance that you could end up paying a lot more.
You Were Sold a Sub Prime Mortgage When you Didn’t Need One
Sub-prime mortgages are a good option for people who have a poor credit rating, or if your income is lower than the amount that most mainstream lenders will accept. They are also an option for people who need a loan with a very high loan to value (LTV) ratio. However, sub-prime mortgages tend to have very high interest rates so if you do not need to get one then you would be much better off with a mainstream lender. If you were sold a sub-prime mortgage unnecessarily then you may have a mis-selling claim.
You Were Sold a Self-Certification Mortgage When you Were an Employee
Self-certification mortgages are an option for people who are self-employed and who are not able to provide evidence of their income to their lenders. These mortgages tend to be higher interest because the lender sees them as a greater risk. If you are an employee and able to prove your income then there is no need to take out a self-certification mortgage, so you may have been mis-sold a mortgage if that is what you were told to get.
There is a second issue surrounding self-certification mortgages, because some advisers will encourage prospective borrowers to lie about their income so that they can get a mortgage that they might not otherwise qualify for. This is fraud.
You Should Have Been Given Advice on Interest only vs Capital and Interest
If you do not want to run the risk of having money left outstanding on the mortgage at the end of the term, then you should take out a capital and interest mortgage. This will allow you to repay both interest and the capital with each payment. As long as you do not miss any payments over the course of the term, the mortgage will be paid off at the end of the term.
With an interest-only mortgage, you will pay interest on the outstanding mortgage, and that is all that you are paying. You will need to find a different investment vehicle to pay off the debt. Most people will take out an endowment, an ISA, or a unit trust. Some people use their pension for it. With an interest only mortgage, you are paying a smaller amount each month, however there is the risk that the investment vehicle that you use will not be able to pay off the mortgage when it comes to an end. Your mortgage adviser should explain this to you and help you figure out whether you are willing to take such a risk.
In contrast to this, an “interest-only” mortgage is exactly what it says. You only pay interest on the outstanding mortgage to the lender. This means that you must find another way of repaying the actual debt, by using what’s called an “investment vehicle”. Common products used are endowments, an ISA, a unit trust, or even a pension. Whilst an interest-only mortgage usually means that you pay lower amounts each month it does carry the risk that the investment vehicle you use is not guaranteed to repay the mortgage at the end of the term. Therefore, your adviser should have discussed with you whether you were prepared to take this risk.
What About if I Went Directly to a Lender?
If you took out a mortgage directly with a lender, and that lender gave you advice about whether the mortgage was suitable, then they will be bound by the same rules as an adviser.
Common signs of Mis-Selling
There are a number of ways that a mortgage could have been mis-sold, such as:
Interest Only
While an interest only mortgage is cheap in the short-term, you end up paying more over the full term of the mortgage and this should be explained to you. You should have been given examples of the cost of different types of mortgages, and explained that at some point you may need to switch over to a repayment mortgage.
Repayment Investments
An endowment policy or a repayment investment is designed to pay off the mortgage at the end of the term, however these can fall short and in that case you will need to pay an additional lump sum.
Consolidating Debts
If you were given a recommendation to consolidate your debts onto your mortgage, but not advised that doing so would lengthen the term of the debt and mean that you pay more in the long term, then you may have been the victim of a form of mis-selling.
Calculating Affordability
An adviser should work out your disposable income and your household budget, to make sure that you are not sold a product that you cannot afford.
Income Certification
Brokers often mis-sold self-certification or ‘fast track’ mortgages because these come with a high commission. You should not be sold these if you are able to prove your income via audited accounts or payslips.
Retirement Age
Did your broker ask you when you plan to retire, and how you would meet repayments if your mortgage ran past retirement age?
Right To Buy
Many people who purchase a property under the right to buy scheme are not aware that their mortgage payments can work out to be higher than their rent, and that they would become responsible for maintenance costs, or that they would lose housing benefit.
Sub-Prime Borrowing
A sub-prime mortgage costs more than a high-street mortgage, and is intended for people who have a poor credit score or a CCJ. If your credit rating is fine and you were advised to get one of these, then that is a form of mis-selling.
Broker Fees
Was your broker fee added to your mortgage without your knowledge? If so, you are paying interest on it and this is a form of mis-selling. Unreasonably high broker fees are not allowed under the regulations either.