A mortgage is mis-sold where a better deal is available or no consideration has been given to the suitability or affordability of the mortgage.
An example of the first type might be where a borrower could obtain proof of income from his employer, but a broker suggests a self-certification mortgage. The interest rates on this type of mortgage are higher, so the broker’s commission is also higher.
As for suitability and affordability a 25 year mortgage sold to a 50-year-old on a fixed income looking to retire at 65 is hardly appropriate; how are the monthly payments to be met at 65 years and beyond? Worse still, what if the the mis-sold mortgage was interest only and no vehicle has been put in place to repay the capital at the end of the term. Even if that borrower could fund the monthly payments between 65 and 75 years of age, how will the loan be paid back, other than by the sale of the house?
The examples given highlight the mind-set of FSA-regulated brokers who were desperate to secure a loan in order to earn commission. Whether the applicant could afford the loan came a distant second in a list of priorities. Lenders themselves turned a blind eye to affordability: an interest-only loan meant huge interest payments without any perceived risk if the borrower defaulted, as repossession would follow. After all, house prices only go up – don’t they?
Fortunately there is recourse for manipulated borrowers under Section 150 of the Financial Services and Markets Act 2000. Provided the conditions specified are met, people are allowed to recover losses by showing that there has been a breach of an FSA rule causing them to suffer loss.
The FSA guidance provides for the consumer to be put back into the position that he or she would have been in if the mis-selling had not occurred.
A huge number of internet-based companies are prepared to take on clients on a no-win no-fee basis if the case has the classic features of a mis-sold mortgage such as being interest only, self-certified, running past retirement age or from a sub-prime lender. Although many of the Independent Financial Advisers of five to ten years ago are no longer trading, their insurers should be. However, if the broker cannot be traced, claims against lenders remain possible. It’s going to be a bumpy ride for insurers, lenders and the FSA.
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