Regulation 

Court rejects FSCS appeal against mortgage advice payout

The Financial Services Compensation Scheme has lost an appeal against paying almost £100,000 in compensation to a victim of bad mortgage advice.

Previously, the High Court quashed the FSCS’s decision to award Charmaine Emptage almost £12,000 in compensation for negligent mortgage advice and ordered the FSCS to reconsider the question of compensation. The Court of Appeal has upheld that view.

Ms Emptage and her partner had an oustanding mortgage of £40,000 which was due to be repaid by 2015. A Berkeley Independent Advisers mortgage broker recommended she remortgage her property for £110,000 on an interest-only basis and advised her to invest the £70,000 proceeds in a property investment in Spain. However, with market falls rendering the Spanish property investment virtually worthless, Ms Emptage was left with an outstanding mortgage of £110,000 with no way of paying it off.

Since the adviser firm involved was insolvent and had no professional indemnity cover available, Ms Emptage made a claim for compensation against the FSCS.

Whilst mortgage advice is regulated by the FSA, advice on the sale or acquisition of land is not regulated. Ms Emptage’s claim to the FSCS therefore only related to the mortgage advice she received and not the advice on investment in the Spanish property.

The FSCS concluded that the mortgage advice Ms Emptage received was unsuitable for her and negligent and, accordingly, she was entitled to redress. She was awarded £12,000.

Ms Emptage sought a Judicial Review of the FSCS’s decision and the High Court ruled in her favour, finding that the FSCS misdirected itself and “acted irrationally” in reaching that award.

The court found that, when making an award of compensation, the FSCS had to restore Ms Emptage to the position in which she would have been had she not received the negligent advice.

At the time, FSCS director of operations Kate Bartlett replied saying she stood by the original calculation.

She wrote: “Although we are very sympathetic to the other losses she has incurred, these arose from the property purchase. As outlined above, I regret that we are unable to compensate for these losses, as they are not protected under our rules.”

This left Ms Emptage out of pocket for more than £98,000.

Delivering his decision yesterday at the Court of Appeal, Lord Justice Moore-Bick said the advice “...was unsuitable, not because she could not meet the monthly interest payments, but because she had no prospect of paying back the loan if her investment failed to live up to expectations”.

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