The Financial Ombudsman has stated that while it does not have the power to change a lenders’ criteria, inflexible processes and “box-ticking” rarely lead to a fair outcome for customers.
In its latest news update, published today (21 July) the Fos argued that the Mortgage Market Review rules do not mean that lenders should not consider their customers’ individual circumstances when making decisions.
In terms of mortgages, there were 3,338 new complaints from April to June, compared to 3,467 for the previous three months, with a stable uphold rate of 32 per cent.
“Over the last few years we’ve continued to receive high numbers of complaints about mortgages,” read the document, adding that “a disappointing proportion” of these involved administrative or communication errors which could have been sorted out without their involvement.
However, the Fos pointed out that many of these complaints may be rooted in something more serious. “For example, complaints about the suitability of interest-only mortgages tend to arise towards the end of a mortgage term; when someone recognises they don’t have a way of repaying the capital.”
Since April 2014, the tighter MMR requirements have meant more complaints that lenders have applied the rules too rigidly – in some cases leading to outcomes that are unfair on customers.
“In particular, many of the complaints we’ve seen about ‘porting’ – transferring a mortgage to another property – stem from the way lenders are applying the new rules,” read the update. “For example, we hear from people who’d previously been told they could port their mortgage – but who have since been told that new lending requirements mean they can’t.”
As FTAdviser reported soon after the new rules came into force, existing homemovers were being hit with thousands of pounds in early repayment fees as a result of their mortgage lenders “over-interpreting” the regulations.
The MMR means lenders must treat every mortgage sale as advised and are tasked with conducting more thorough affordability assessments, including where existing borrowers move to new terms.
However, changes to the original drafting of the rules in 2012 meant lenders were not required to test affordability for existing borrowers that are porting a mortgage or otherwise moving house and not increasing the size of their outstanding loan.
The Fos’ update also contained statistics for the financial products that consumers complained about most in April, May and June this year.
Complaints about personal pensions fell slightly to 277 from 294 in the previous quarter, while the uphold rate increased slightly from 23 per cent to 27 per cent.
Looking at the rest of the market, complaints about self-invested personal pensions rose to 261 for the period from April to June, compared to 303 between January and March this year. However, the uphold rate fell from 66 per cent to 51 per cent from quarter to quarter.
It also appears that changes announced at the 2014 Budget to allow savers to open access to their pensions prompted more complaints over annuity policies which lock retirees into an income for life, however the uphold rate has only risen by 3 per cent.
The Fos data showed that complaints about annuities were 245 in three months to June, up from 227 during January to March, although the uphold rate only rose 3 per cent to 20 per cent.
Income drawdown complaints stayed relatively low with only 42 complaints made in April to June period, however the uphold rate is higher at 47 per cent compared to 33 complaints and an uphold rate of 43 per cent.
There were also 228 complaints about Isas in the April to June quarter, compared to 176 in the previous quarter. The uphold rate remained steady at 40 per cent.
In term of income protection, there were 250 complaints in the last quarter with 26 per cent upheld, up from 317 per cent and a 31 per cent uphold rate in the previous quarter in the first quarter. Critical illness complaints were also up slightly to 205 from 211, with the same rate (24 per cent) of upholds.
peter.walker@ft.com, donia.o’loughlin@ft.com
