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Mis-Sold Mortgage Claims: How to Claim Compensation

The Financial Ombudsman Service (FOS) recently released its decision regarding the case of a homeowner who had his home repossessed after he had been mis-sold a mortgage. This ruling could set a precedent preventing other consumers from losing their property and opening the floodgates to making compensation claims.

The Council of Mortgage Lenders (CML) reports that up to seventy five thousand people will have their homes repossessed this year (an increase on last year’s figure of forty thousand properties). However, there’s hope for those being threatened with repossession with detailed rules set out in the Financial Service Authority (FSA) handbook, which provides guidance on ‘suitable advice’ when a mortgage is recommended by a lender or broker.

In this most recent case the homeowner was finding it difficult to keep up the monthly repayments on his mortgage. The Financial Ombudsman Service intervened after his home had already been repossessed and reviewed his mis-sold mortgage claim. They subsequently ruled in his favour and awarded substantial compensation. The good news for borrowers is they may well be able to avoid losing their homes by requesting a free mortgage audit from a specialist claims company.

The mis-sold mortgage claim found the housing association tenant had been the victim of bad advice from a broker who persuaded him to buy a property, but failed to make sure he could afford the repayments after the low introductory fixed rate ended. As a tenant he had been guaranteed a fixed rent for life.

He was unable to keep making the repayments and had to move out. This was reported to the FOS and a formal complaint was made to the broker for mortgage mis-selling

The rules state mortgage advice must be “suitable for the customer” and advisers “must make and retain a record” of it being suitable; this is known as complying with section 4.7. Breaches of the MCOB rules are “actionable at the suit of a private person who suffers loss as a result”, under section 150 of the Financial Services and Markets Act 2000

Some feel more uncertain and believe it very much depends on the unique circumstances surrounding a potential claim. However, both agree that the MCOB rules are important to establishing if there is a valid claim for compensation.

Others have suggested that homeowners will try to use the rules for their own gain without seeking the advice of a no win no fee legal professional. What’s clear is that many borrowers have been the victim of being mis-sold a loan which was unaffordable.

In a 2007 report from the Citizens Advice Bureau (CAB) called ‘Set up To Fail’, attention was focused on the advice given for sub-prime mortgages. The CAB established many of their clients, who had lost homes due to repossession, had been given inappropriate advice and mortgages which they could not afford. This was also the case for tenants buying their council house under the ‘right to buy’ scheme.

In one particular case a couple from Wales who had a disabled son, were encouraged to apply for and accept a second mortgage. After reviewing the advice given it was clear a mis-selling claim was likely to succeed as their combined monthly mortgage repayments were £1300, compared to a total monthly income of £1500. Nearly 90% of their monthly earnings was being used to pay the mortgage and secured loan.

The Council of Mortgage Lenders states that the MCOB rules are there for a reason, to protect the customer from poor or misleading advice. Consumers require the best information when making an important decision about which mortgage or remortgage is best for them. The customer needs to know they have a way to claim recompense for bad advice.

Not every case is straightforward and in some circumstances the issues remain complicated. However, the Financial Ombudsman Service is there to make sure victims of mis-selling are restored to the situation they would otherwise have been in.

Since the beginning of the credit crunch, house prices have been declining and the FOS has a difficult task in working out a fair amount to compensate victims of mis-sold mortgage claims. For example, if your house had risen in value during the last few year and you were no worse off, then a claim may not be successful. However they still need to protect those who have seen the value of their homes drop in value.

Do you have a Mis-sold Mortgage Claim?

  • Did the broker advise you to overstate your monthly income?
  • Did the adviser check to make sure you could afford the mortgage? They should have reviewed your recent payslips, bank statements to establish your monthly income and expenditure.
  • Did your mortgage take you past retirement age? It is the responsibility of the adviser to make sure you could meet the monthly repayments when you stop working.
  • Do you feel you were given the ‘hard sell’ or not provided with all of the details about the mortgage being recommended?
  • Were you told what would happen to the monthly repayments if interest rates went up?

These are only a small example of some reasons for a potential Mis-sold Mortgage Claim. Best advice is to always choose a specialist Claims Management Company who operate on a No Win No Fee basis and make sure you’re offered a free mortgage audit.

Once a mortgage audit has been completed and a claim for compensation has been established, the legal specialists contact the adviser who sold the mortgage. However, many firms of advisers have disappeared since the credit crunch began. In these circumstances, if no solution can be found then the case will be taken to the Financial Ombudsman Service for a review. If there is a repossession order in place the FOS would request that the repossession proceedings are put on hold during any investigation.

It should be noted that even if a mortgage began before the MCOB rulings in November 2004 the rules could still apply.