RegulationAug 29 2017

L&G wins interest-only mortgage advice complaint

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L&G wins interest-only mortgage advice complaint

An ombudsman has upheld a complaint about advice provided by Legal & General Partnership Services about an interest-only mortgage.

The client, referred to as Ms W, claimed she had been badly advised and mis-sold the mortgage in 2008.

This was because the advice was to consolidate her debts into the interest-only mortgage.

Ms W, who was represented by a claims management company, had said the decision had simply postponed the payment of these debts until some point in the future and in the mean time she was adding interest to them.

But the Financial Ombudsman Service found in favour of L&G because Ms W needed to get control of her finances in the short term.

John Miles, an ombudsman with Fos, found that before remortgaging Ms W’s outgoings were around £287 more than her income and afterwards her monthly income was £200 more than her outgoings.

He said: “It was clear to me that Ms W needed to do something to sort out her finances.

“She was spending more than she was earning – and she was missing payments on her unsecured debts which affected her credit file.

“I did need to think about if it was suitable to recommend that Ms W effectively took a break from paying capital off her mortgage and the debts she repaid with it.

“There are times when taking a break from paying capital where there are financial difficulties is appropriate.

“Indeed, many lenders will do this to help a borrower through such difficult times. “Given Ms W’s outgoings each month were more than her income, and she was missing payments on her other debts, I thought it was clear she was having financial difficulties.

“I didn’t think it was unreasonable for L&G to give her advice that allowed her some time to sort these out.”

By consolidating the two credit cards and the loan into her mortgage, Ms W added just over £20,000 to her secured debt.

This also had the effect of extending the remaining term of the loan from just under two years to 15 years.

But the interest rate on the mortgage was lower than that on both the loan and credit cards.

Mr Miles said that from what Ms W told the adviser it also seemed she wasn’t reducing the balances on her credit cards at all each month.

He said it seemed likely Ms W was borrowing close to the maximum amount she could on the new mortgage in relation to the value of her property.