In recent weeks it appears that there are a number of claims management firms who are approaching the mortgage mis-selling claims market with renewed vigour, and a number of solicitors are reportedly securing significant wins for their clients.
The validity of such claims has been subject to much dispute in recent times but in late August 2014, the FCA imposed a fine of £14,474,600 on Royal Bank of Scotland (RBS) and its subsidiary NatWest over what were described as “serious failings” with its mortgage advice. Some of the most serious issues identified by the regulator were:
- There was insufficient assessment of customers’ budget and their resulting ability to afford the mortgage payments
- Advice given to customers seeking to consolidate debts into their mortgage was inadequate – consolidation of unsecured debts into the mortgage was not suitable for everyone
- Advice was not given over the term the mortgage should run for, with customers left to make this decision themselves
- Advisers were offering personal opinions on future interest rate rises – one implied that rates were certain to rise and that an increase to 5.5% was possible. These ‘opinions’ were then used in deciding which type of mortgage to recommend. Of course, in reality, the Bank of England base rate has remained at 0.5% since March 2009
Other mortgage-related failings for which the FCA has taken action in recent years include miscalculation of mortgage payments (an £8.9 million fine was levied on Clydesdale Bank in August 2013), and failing to treat customers in arrears fairly (for which Yorkshire Building Society was fined £4.1 million in October 2014). Clydesdale agreed to pay compensation to affected customers as part of the settlement with the FCA.
The above examples cited by the regulator provide for a fairly comprehensive list of the reasons as to why a mortgage many have been mis-sold but other possible reasons for making a claim can include:
- Being recommended an interest only mortgage with either no repayment plan, or a repayment plan that was never likely to provide sufficient funds
- Being recommended a self-certification mortgage when proof of income would have been available
- The adviser considering only the initial mortgage interest rate, and not considering affordability when the discounted period ends
- Being recommended a mortgage that runs into retirement, without consideration of likely income and expenditure in retirement
Many of these claims would be against the broker that recommended the mortgage, and not necessarily against the lender. If the broker has ceased trading, as many have since the 2007 credit crunch, the customer may need to turn to the Financial Services Compensation Scheme for assistance.
It is unlikely that mortgage mis-selling will see the volume of claims that PPI has. PPI was often an inherently flawed product, whereas the design of most mortgage products was essentially sound. The issues concern whether customers were recommended the right mortgage products, over the right term and for the right amount.
Claims management companies (CMCs) considering getting involved in mortgage mis-selling claims should note that new rules introduced by the Ministry of Justice mean that CMCs need to consider whether claims have a reasonable prospect of success before submitting them, and must be able to provide evidence to back up any assertions made in the claim. The blanket approach of recent years, where some CMCs wrote standard letters to any provider who may have sold PPI to their customer, must not be repeated here.
In October 2013, the Advertising Standards Authority ruled that one firm could not provide evidence to justify the figures in its TV advert as to how much compensation customers might receive for mortgage claims.
Any firm thinking of entering into the mortgage mis-selling sector should review their claims product offering carefully and be prepared to evidence the basis of the claim to the Claims Management Regulator.
For advice and guidance on ensuring compliance in the mortgage mis-selling claims sector speak to one of the team at Scott Robert on 0161 914 5727.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.