A mortgage is usually the largest financial agreement that many of us experience. With such a major commitment, you might face serious consequences if anything goes wrong with your mortgage, or if the mortgage you have been sold is not appropriate for your circumstances.
There are laws and regulations which govern how mortgages can be sold to consumers. If these rules were broken when you took out your mortgage, then it may have been mis-sold, and you could be entitled to compensation to repair any financial harm which you suffered as a result.
However, mortgages can be confusing, and working out whether you have been the victim of mis-selling can be difficult. We aim to help you through your claim, giving you as much information as you want about mortgage mis-selling and outlining what you can do if you believe you have been mis-sold your mortgage.
What is mortgage mis-selling?
Mortgage mis-selling can cover many different circumstances. Usually, it centres on questions of whether the mortgage lender or broker took the time to advise you properly, fully assess your circumstances and suitability or whether they acted openly and fairly in their dealings with you.
Some common examples of mortgage mis-selling include:
- Neglecting to advise you fully on all the mortgage contract you were agreeing to.
- Failing to assess your ability to afford the mortgage repayments.
- Failing to detail the fees they would be charging you or explaining how these would be paid.
- Charging you unfair fees and hiding secret commissions
The legal basis for mortgage mis-selling claims
We have a team of solicitors who will be able to help you with your mis-sold mortgage case. However, it can be useful to know the source of the rules and regulations covering the sale of mortgages.
The sale of mortgages (and many other financial services) is regulated by the Financial Conduct Authority (FCA). The FCA is an independent body tasked with:
- Protecting consumers when buying financial products.
- Regulating against bad practices.
- Promoting an effective, trustworthy financial services market.
- The FCA’s rules cover mortgage lenders directly (e.g., banks and building societies), but also intermediaries, such as mortgage brokers and financial advisors. The rules impose many obligations on lenders and brokers, generally aiming to promote fair, honest and professional conduct, which has the best interests of the customer at heart.
- A claim for mortgage mis-selling will frequently rely upon showing that a lender or broker has breached one or more of the FCA rules. This means that it is possible for someone who has suffered a loss to bring a claim for compensation to make good those losses.
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Specific examples of mortgage mis-selling
Here are some specific situations in which mortgage mis-selling can occur, including:
Interest-only mortgages – This is when the borrower only pays interest that accrues on the capital lump sum of the loan, this usually allows for a much lower monthly mortgage repayment, however, this means that the capital amount does not get repaid during the term of the mortgage. When the mortgage term ends, the capital outstanding becomes due for repayment. This can cause difficulties if the borrower does not have a lump sum to pay off the debt. If you took out an interest-only mortgage, it does not necessarily mean it was mis-sold to you. However, given the potential dangers for unprepared borrowers, there are specific FCA rules for how lenders and brokers must approach selling interest-only mortgages. This will involve the lender or broker obtaining evidence that you have the means to repay the interest and the capital amount of the mortgage at the end of the term. If none of these options were discussed with you at the time, your mortgage lender or broker may have mis-sold you your mortgage.
Endowment policies linked to interest-only mortgages – An endowment policy is an investment product; they are set up as a regular savings plan and at the end of a set period pay out a lump sum. The policy includes an element of life assurance, so it will pay out if you die during the term. When these policies are linked to an interest only mortgage it is expected that the policy will have grown sufficiently over the term to repay the outstanding mortgage, however, this was not always the case. The size of the lump sum you get at the end of your endowment often depends on the performance of the investments. If the policy does not increase in value as intended, it could result in the final payout being insufficient to cover repayment of the mortgage. If the risks involved in an endowment policy were not fully explained to you, you may have a claim for compensation.
Self-declaration or self-certification mortgages – these are mortgages in which you did not need to prove your income or outgoings in order to be accepted. Essentially, it was left for the borrower to self-declare or certify that they were able to afford taking out the mortgage and would also be able to maintain the monthly payments throughout the term of the mortgage. Lenders & brokers have responsibilities to check that the borrower can afford the mortgage under FCA rules, being sold one of these mortgages can form a strong basis for a mis-sold mortgage claim.
Mortgages beyond the age of retirement – If this has happened to you, your lender or broker should have notably discussed this with you when you took out the mortgage. After retirement, you will no longer be receiving a salary, so the lender or broker must have discussed your ability to continue paying the mortgage payments through other means. If they did not consider this when you took out the mortgage, it could represent mis-selling of the mortgage.
Re-mortgaging for debt consolidation purposes – You may have been advised by a lender or broker to consolidate smaller debts such as short-term loans and credit cards by re-mortgaging your house. Although this can reduce your monthly outgoings initially it also increases the amount of your mortgage, which may result in you paying more overall. Because the amount of your mortgage has increased it will accrue higher amounts of interest than before, and over a much longer term than personal loans and credit cards. If these issues were not raised at the time you took out the consolidation mortgage you may be entitled to compensation.
Hidden or excessive fees and broker commission – If you were charged unreasonably high fees for a mortgage, this could also constitute mis-selling. If the fees were added to the amount of the mortgage, this is increasing your debt, which means you would have paid interest on the fees that you were charged.
Failure to advise of penalties or fees when switching mortgages – Lenders & Brokers are also under obligations to inform you of any fees which are payable as a result of switching mortgage lenders.
If you took your mortgage out through a broker, the lender may have paid your broker a commission without you knowing. If these commissions were excessively high there is good possibility that the broker would be incentivised to choose that lender for your mortgage, rather than looking at the most suitable product for you and your circumstances. It is worth investigating this further to see if you have been advised correctly.
From the 21st March 2016, all brokers must inform their customers of the amount of any commissions they receive, or if this is not yet known, they must agree to disclose this information when it has been established. If these obligations apply to your mortgage but have not been followed by the broker this could indicate a mis-sold mortgage.
Making a mis-sold mortgage claim with MLC
The examples we have used give common scenarios in which mis-selling can occur, however, if you are unsure or would like to discuss your situation with one of our experts; all you need to do is contact us.
One of our Solicitors will act as your legal representative when you make a claim. All our solicitors are experienced in mis-sold finance claims and have the knowledge and expertise to research the relevant information for your case. They operate on a No Win, No Fee basis, meaning you will not have to pay any fees if you are unsuccessful in your claim. They will assess and advise you on your claim in a professional and objective way.