What are mis-sold mortgages?
Mortgage mis-selling occurs when your lender, financial advisor or broker failed to:
- take the time to properly assess your circumstances and requirements;
- advise you on a mortgage that was suitable; or
- act in an open, honest and transparent way
and this results in the customer ending up with a mortgage that is not suitable for their circumstances.
Common examples of mortgage mis-selling includes:
You may have been advised:
- to take an interest only mortgage without proper consideration being given by your advisor on how you will repay the capital at the end of the term;
- to borrow money without proving your income (also known as self-certification) or were advised to overstate your income;
- to progress with a mortgage but were not told about the fees and penalties;
- to progress with a mortgage but were not informed about the commission payment being paid to the advisor from the lender;
- to take out a mortgage that went into your retirement, where no consideration has been made on affordability when retired.
However, these products are not always mis-sold. A lot depends on what the lender/broker informed you before you agreed to your mortgage. Any communication between the customer and the lender is therefore crucial evidence. Claims can be brought against the lender, financial advisor or broker.
What is the law?
The mortgage market is regulated by the Financial Conduct Authority (FCA) which derives its powers from the Financial Services and Markets Act 2000 and covers lender, financial advisors and brokers.
The rules which organisations must follow are contained in The FCA Handbook, specifically Mortgages and Home Finance: Conduct of Business (MCOB).
A claim for mortgage mis-selling will frequently rely upon showing that a lender or broker has breached one or more of the rules within the FCA Handbook. Section 138D Financial Services and Markets Act 2000 make breaches of the handbook actionable.
Things the customer needs to prove
- you were sold mortgage by lender/broker that you are claiming against;
- breached one or more of their obligations under FCAs; and
- that this breach caused them loss
Remedies to mis-sold mortgages
To rectify mis-sold mortgages The Financial Ombudsman Service may:
- if the customer was sold the wrong mortgage, refund the cost of setting up and closing down the mortgage;
- put the consumer in the position they would have been in had they received sound advice;
- produce a workable repayment plan where the mortgage was suitable, but the customer cannot repay the capital;
- request the lender to pay the customer compensation if distress was caused by the mortgage.
What if the defendant has gone out of business?
- those who were mis-sold a mortgage may be able to make a claim through The Financial Services Compensation Scheme. To be eligible the mortgage must have been regulated by either FCA or Prudential Regulation Authority, though note this is capped at £85,000.
How long do I have to make a claim for mis-sold mortgage?
- must lodge complaint with the Financial Ombudsman within 6 years upon the date the mortgage was taken out; and
- this period can be extended where you have found out about the mis-selling at a later date. A time limit of 3 years will apply running from the date you became aware of (or reasonably should have become aware of) the mis-selling.