Claims management companies are turning their attention to mortgage mis-selling following a feeding frenzy over PPI. Firms have set up websites and are beginning to bombard consumers with advertising, texts, emails and phone calls to publicise their services to anyone who may have been mis-sold a mortgage.
One of the initial targets has been borrowers with interest-only mortgages. Other possible areas include deals where a decision was made to self-certify a mortgage or opt for sub-prime when a more mainstream loan would have been possible, and where the mortgage term extends into retirement. Even where there may have been issues with affordability or an unexpected change in circumstances, these are considered possibly fruitful areas for complaints.
The claims firms, with names such as missoldinterest.com and dodgybroker.com, refer to the failure of the adviser or lender to advise consumers or check their circumstances and details properly. They can be pretty emotive about these failures.
One suggests that mortgage brokers and lenders were motivated by greed in selling mortgages. Brokers, they argue, only presented borrowers with products that paid them the highest commissions.
Another seeks to discourage borrowers from going direct to the lender to sort out any claim themselves because “The mis-selling industry is a highly specialised field and you would need to make sure you fully understand the law and the implications.”
Do it yourself?
Many of the firms also boast no upfront fee charges. Many operate on a no-win, no-fee, basis but take a percentage of any compensation they manage to obtain. Of course, borrowers dissatisfied with an adviser’s or lender’s response to a complaint can approach the Financial Ombudsman Service (Fos) themselves without having to pay a penny or forfeit any compensation they might be due.
However, campaigns by the claims companies are likely to trigger more complaints and Fos is quick to acknowledge that they can reach more people and spread awareness more effectively than it can. If it means people who have been mis-sold make a complaint, Samantha Hargreaves of Fos said, then that was not necessarily a bad thing.
So far, however, Fos has not seen any significant increase in the number of complaints about mortgages and how they were sold. Graph 1 shows the number of mortgage-related complaints that Fos has dealt with since April 2000 compared with the number of overall complaints. So far there appears to be no marked rise in mortgage complaints compared with other products.
Fos attributes the slight increase in 2007/8 to complaints about the fairness of mortgage arrears administration fees as people began to feel the recession pinch. There were also more complaints about how lenders handled arrears problems.
The number of complaints about mortgage endowments (not classified as mortgage mis-selling by the Fos) reached about 300,000 at their peak, while the number of PPI complaints reached the half-million mark, making it the biggest mis-selling issue that Fos has had to deal with so far. Of the 341,666 complaints Fos dealt with in the nine months to December 2012, 244,871 were about PPI and only 8,739 about mortgages. It seems unlikely that mortgage mis-selling will reach such huge numbers, although of course it is impossible to tell.
One factor that is likely to help drive the number of complaints is the economic backdrop. Fos reports that around 3,000 of those who complained about their mortgages in 2012-13 – about a third of the complainants – were in severe financial difficulty.
Off the hook
On the face of it some mortgage deals look like prime candidates for mis-selling. However, in considering cases Fos does not let consumers off the hook completely. It also takes account of how aware the borrower was of the facts.
While it accepts that consumers look to the experts for advice it will also look at what is reasonable for the borrower to have known and understood at the time of the sale. So it may be quite hard for some borrowers to prove that they did not know that there was no repayment vehicle set up, their income was overstated or that they had not noticed that the mortgage term extended into retirement.
A report on interest-only mortgages by the FCA has backed this stance, concluding that there is no evidence of widespread mis-selling of interest-only mortgages. Only 13 per cent of borrowers say they did not know they needed a repayment plan when they took out the loan.
Is the mortgage industry going to be as easy for claims management firms to crack as PPI? PPI was clearly mis-sold on a widespread basis. With stringent rules around the sale of mortgages it is hard to believe there are that many “mis-selling” cases around where the borrower was not at least complicit. As with all these things, we can only wait and see.
