Payment protection insurance (PPI) has become the most mis-sold financial product in the history of UK financial services. Other products have previously been mis-sold on a large scale, such as mortgage endowments and interest-rate swaps. Inevitably, some are asking, what will be next?
Interest-only mortgages have been suggested as a candidate. Many claims management companies (CMCs) are already active this area.
Interest-only mortgages involve the borrower making monthly repayments of the interest accumulated during the mortgage term, while the capital balance remains at the original level. Borrowers have historically repaid the capital balance from the proceeds of a savings plan. However, as the housing market boomed, increasing numbers of customers saw the opportunity to effect an interest-only mortgage without a repayment plan, believing they could rely on property prices continuing to rise, so that selling their home in the future would inevitably provide sufficient funds to repay the loan.
According to data from Lloyds Banking Group, the average UK house price in the fourth quarter of 2012 was £160,814, down from a peak of £200,623 in the third quarter of 2007, representing a fall of 20 per cent over five years. This has left many people’s plans to repay their interest-only mortgages from the sales of their properties in tatters. Before the property crash, even respected economists believed that property prices could only continue to rise.
CMCs are currently inviting customers to make mis-sold mortgage claims if any of the following apply:
- They were not recommended to have a repayment plan in place
- They were recommended a mortgage even though the combined cost of making the interest repayments and saving to meet the cost of repaying the capital was unaffordable
- They were not advised to regularly review their repayment arrangements to ensure they were on track to provide sufficient funds
A large proportion of the PPI claims have been made against the major high street banks and a few other companies. While the banks undoubtedly sold interest-only mortgages, a number of these claims are likely to be made against small mortgage brokers who recommended interest-only to their clients.
It has been suggested that many interest-only mortgage claims are likely to be unsuccessful because in many cases, the mortgage documentation contained a prominent reminder to the borrower that they were required to make arrangements to ensure the loan was repaid. Nevertheless, lenders and brokers would do well to remind their clients with interest-only mortgages of their repayment obligations.
There may still prove to be large numbers of successful interest-only mortgage claims, but most commentators agree that making a claim for this product is likely to have a lower success rate than for PPI, where the independent Financial Ombudsman Service (FOS) has upheld a significant majority of complaints received.
However, whereas most PPI claims involve relatively small sums – with the average payout around £3,000 – any successful mis-sold mortgage claims are likely to involve much larger amounts.
Under the Financial Services Authority’s Mortgage Market Review, from February 2014, mortgage sellers will be forbidden from recommending interest-only mortgages unless the borrower has a clear repayment strategy in place, such as a savings plan.
Are you looking to set up a Claims Management Company for miss-sold mortgages, investments or housing disrepair? Scott Robert has a proven track record of successfully helping 100s of Management Companies gain authorisation from both the MOJ and FCA. If you would like to discuss how we can help you complete a successful application, call us today on 0161 914 5727. Claims Management Company FCA Authorisation
****PLEASE NOTE SCOTT ROBERT CANNOT ASSIST INDIVIDUAL CONSUMERS WITH MIS-SOLD MORTGAGE COMPLAINTS****