A client took out a repayment mortgage with a high street building society with initial borrowings of £160,000 and a subsequent further advance of £30,000.
The client’s lender had mis-calculated the interest payable by not appropriating the repayments in the proper manner. This had resulted in significant over-charging of interest which the client was completely unaware of. It was only upon an interrogation of the information provided under the DSAR that the overcharging was discovered.
Result Of Claim
The claim was submitted to the lender and redress was paid to the client of £20,092.50 plus £9,429.15 statutory interest.
In the following example case, a number of breaches to the Mortgage Conduct of Business rules were identified and highlighted in the report.
The broker advised the clients to remortgage in April 2006.
At the time of the advice the clients had a capital repayment mortgage with Preferred with an outstanding balance of £76,847 including arrears. This mortgage had completed only 12 months earlier and had a remaining term of 16 years.
The clients were experiencing financial difficulties and wanted to reduce their monthly outgoings.
The DSAR included the lender application form indicated erratic mortgage payments and arrears throughout the preceding 12 months.
Assuming the broker undertook a fact-finding exercise before his recommendation, It ought to have been clear to him that the clients should not increase their secured indebtedness and should have sought independent debt advice regarding their unsecured debts, and have prioritised their mortgage payments.
The broker recommended an interest only remortgage over 21 years at a marginally higher rate than the existing by 0.5%
The broker exacerbated the situation by recommending consolidating £8,000 of unsecured debts and adding the inevitable fees and charges which would be incurred in this situation.
The new mortgage amount represented an increase on the existing by £16,903.
Of the £16,903, £9,769.85 was the total of associated fees in respect of the new mortgage, £8,000 was unsecured debt consolidation. Within the £9,769.85 the broker fee charged was £3,595 and £4,789.85 the early redemption penalty applied to the existing mortgage incepted 12 months earlier.
Mrs xxxx was aged 57 at the time of the advice and will be aged 78 at the end of the recommended term, her partner will be 77. Within the DSAR there is no indication of anticipated retirement ages nor how the mortgage payments would be met in retirement.
The best advice would have been to advise the clients to seek independent debt advice regarding the two unsecured accounts and not increase their secured borrowings by remortgaging, consolidating previously unsecured debts and incurring large fees and charges in the process.
They should not have been advised to switch from a repayment mortgage to an interest only mortgage without any suitable repayment strategy in place.
Result Of Claim
As the advising broker is no longer trading, the solicitor acting submitted this complaint and report to the FSCS resulting in an offer of compensation of £60,224.96.
The FSCS offer letter states “The compensation aims to put you in the financial position you would have been in if you had not received the firm’s mortgage advice. The compensation covers losses already made and settlement of the mis-advised mortgage, including any penalties payable to the lender. It does not aim to cover future or assumed losses”