Interest-onlyNov 3 2017

Harlequin mortgage repayment plan costs broker £30K

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Harlequin mortgage repayment plan costs broker £30K

Intrinsic Mortgage Planning Ltd has to cough up more than £30,000 in compensation after one of their appointed representatives recommended an interest-only loan to a borrower who opted for Harlequin as the repayment vehicle.

In August 2009 a client referred to as Mr G met with an adviser at TBG Financial Services Ltd, a representative of Intrinsic Mortgage Planning Ltd at that time, to raise the capital needed to fund an investment in Harlequin. 

After receiving mortgage advice, Mr G – who was aged 61 at the time with an income of £23,500 plus general annual overtime of a further £4,800 - applied for an interest-only mortgage for £71,000 over a five-year term. 

It was intended that around £30,000 would be used to pay a deposit for the Harlequin investment, and the remainder used to clear Mr G’s existing repayment mortgage. 

The mortgage completed in October 2009 and Mr G expected that his mortgage payments would be met by Harlequin, under the terms of his investment arrangement. 

As the Harlequin property was never built it is highly likely that Mr G has lost all of the money he paid as a deposit. 

In September 2015 Mr G complained to Intrinsic, using a law firm to act on his behalf.

He said he believed the advice he received was unsuitable because the adviser proposed an interest-only mortgage when the repayment vehicle for that lending was the expected success of a high-risk, unregulated investment. 

Intrinsic rejected the complaint stating Mr G’s recorded repayment means was an Isa, and its adviser wasn’t required to seek any evidence of that means. 

It also said the key facts documentation made clear Mr G would still have £41,000 left to repay at the end of his mortgage term and he would need to account for that. 

Intrinsic concluded its adviser gave reasonable advice having accounted for Mr G’s circumstances. 

Intrinsic also argued the adviser wasn’t qualified to advise whether the property was a realistic repayment vehicle or to assess the risks attached to borrowing to invest on that basis and it wasn’t their fault if the underlying investment failed. 

But the law firm acting for Mr G argued the adviser’s documents showed he had taken out a part repayment, part interest-only mortgage and that wasn’t correct. 

The lending was entirely interest-only. 

In a final decision, ombudsman Jo Storey said: “I uphold this complaint. This isn’t because the investment failed or to compensate for Mr G’s investment loss, but because I don’t believe Mr G was fully advised of the risks in repaying the mortgage, and the mortgage advice was unsuitable for his circumstances.  

“I accept IMPL’s explanation that it only authorised the adviser to provide mortgage and protection advice. So I realise TBG’s adviser wasn’t authorised to give advice about unregulated overseas property investments. 

“But, he was aware that was the reason Mr G sought the remortgage; there is an internal email from the adviser in September 2009, which notes why Mr G required the lending. 

“It follows I believe that the adviser was put on notice as to Mr G’s particular circumstances and the nature of the Harlequin investment. 

“I believe if the adviser had made Mr G aware of the risks, and if he’d appreciated those risks, he wouldn’t have taken out the additional borrowing on an interest-only basis. It was unaffordable, and not suitable given his documented income and expenditure.” 

Intrinsic Financial Planning Ltd was told to pay Mr G £30,000 plus 8 per cent interest to represent the additional borrowing taken on an interest-only basis used to fund the deposit for the Harlequin property investment.

Plus Intrinsic must cough up for the interest payments he has paid to service that £30,000, less the contributions made by Harlequin towards those costs.

Intrinsic also has to pay Mr G the mortgage arrangement fee of £995 which was added to the loan, plus the mortgage interest applied to that sum; along with £750 for the trouble and upset he has suffered while having a mortgage debt against his home he had no means of repaying. 

emma.hughes@ft.com