This week we have asked our mortgage experts to consider which areas of their market may be exposed to the risk of future mis-selling claims.
Dale Jannels, managing director, distributor, All Types of Mortgages, says brokers need to be mindful that future claims may not be about what they have sold, but what they haven’t.
Alex Smith, senior mortgage and insurance adviser, Capricorn Financial Consultancy, considers the risks of limited company buy to lets, debt consolidation and interest only claims.
John Phillips, group operations director, Just Mortgages, considers the future risks of not selling protection policies.
Dale Jannels, managing director, All Types of Mortgages
Some of the calls we get at AToM amaze me. Whether it’s a broker wanting to charge a fee of up to 10% of the loan amount, or the complete lack of a fully-documented enquiry, I shudder at what will happen when the ambulance chasers move on from PPI claims and where they will target their intrusive and insensitive money claim requests next.
Like it or not, we live in a complaints culture and everyone is encouraged to complain moving forward. There are forums set up specifically for people to whinge (including the broker market) and share stories on how they complained and made someone pay. Not necessarily because the accused did a bad job, just that the door was left ajar through a lack of paperwork and confirmation that the product sold was fully understood and suitable.
We all know that self cert, interest only and lending into later life will be under the spotlight at some point. That said, I fear more the customer who will comeback in some years time to say ‘you didn’t sell me that product’, which they found they actually needed some time after their meeting. Life cover and other protection policies being prime examples.
We can do the best job in the world but if the client doesn’t witness and confirm their full understanding of all products sold, and also products they were advised on but chose not to take up, the broker is opening themselves up for issues in later life. Fill out that fact find, make that ‘Reasons Why’ letter as long and as comprehensive as you need. Cover everything, because you can be sure that if you don’t cover every part of the sale with the customer, and get them to sign and confirm understanding, the ambulance chasers will have a field day and you could be fighting a huge number of unnecessary battles.
There are a couple of areas which I think have the potential to become a mis-selling scandal
Firstly, I’d like to look at limited company buy to let. The changes to buy-to-let taxation have increased the number of people using a limited company to purchase investment property. Whilst this will make sense for some, I do wonder how many people are asking for, and receiving, the correct tax advice before embarking on this ownership structure. Brokers could expose themselves to complaints, not just about the mortgage that was recommended, but for wrong tax advice which few of us are qualified to discuss. Another area of concern is the ability to get a larger mortgage by committing to a five-year fixed rate rather than two years. As the changes to tax relief take hold, and start to show in years three, four and five of the product, we could see people who have not received the correct tax advice attempt to sell up, and blame someone for the poor investment.
Debt consolidation is another area of concern. As with PPI, debt consolidation will sound attractive at the time of purchase. However, consolidating a loan that will terminate in three years’ time with a mortgage that matures in 20 years’ time and not making the client aware of the additional cost or documenting the conversation, which proves they have, is leaving themselves open to an easy claim further down the line.
On interest only, I do not think we have yet seen the full impact where people have been advised to take out interest-only mortgages for reasons of affordability that was common pre-2008. These mortgages will start to mature over the next 10 to 15 years and people will start to lose their homes if they have not made alternative arrangements.
Claims against brokers and financial advisers are becoming increasingly common, particularly in the area of mis-selling. In fact, although there are around 27 million employed people in the UK, less than 2.5 million have short or long-term income protection. Therefore, for me, the real issue the broker community is facing is not mis-selling, but not selling, with many arranging mortgages for customers but failing to offer any kind of protection. This often occurs when the market is busy. This means that if a customer makes a claim and there is no documentation as they weren’t offered a protection product, the industry has a real problem on its hands.
We clearly live in a claims culture and the country’s widening protection gap is an issue that must be dealt with, and quickly. Although income protection has suffered as a result of the PPI mis-selling fallout (to which it is often aligned), we must change these perceptions and ensure protection is at the top of the agenda.
On a positive note, the industry is taking positive steps. For example, Openwork recently launched risk reports to help boost protection take-up and increase awareness of the value of protection. Brokers must not only add value to customers but must remember the importance of the Treating Customers Fairly initiative, by ensuring customers are sufficiently protected.
It all comes down to corporate responsibility and accountability and we must make sure complacency doesn’t creep in. Customers must be provided with appropriate advice to protect themselves and their families when making one of the biggest financial commitments of their lives.