According to an article in The Observer over the weekend, CMCs expect to bring claims against both lenders and brokers. However, lenders and the Financial Ombudsman Service have played down the reports.
A spokesman for the Financial Ombudsman Services told me today it had “barely seen any complaints” over interest-only mis-selling.
He said: “The Financial Services Authority has interest-only mortgages in two tranches. There are the ones from 1988 onwards that were hard-sold with mortgage endowments. We’ve had hundreds of complaints about mortgage endowments but it’s about the repayment vehicle, not the underlying interest-only mortgage.
“Another key interest-only problem is with policies sold in the mid-noughties where there was a concern that some people may not have any repayment vehicle at all, but we’re not going to see those for a while. From the Ombudsman perspective, it doesn’t mean there isn’t a problem, there may well be, but realistically we won’t see these for some time.”
Meanwhile, the Council of Mortgage Lenders has said it “strongly believes” that the overwhelming majority of interest-only mortgages “have been sold and administered in line with FSA standards.”
However, earlier this month, a High Court ruling forced the Financial Services Compensation Scheme (FSCS) to increase its £12,000 pay out to an interest-only borrower after an offshore property investment went wrong.
The case, Emptage vs Financial Services Compensation Scheme, involved a client, Ms Emptage, who on the advice of an IFA remortgaged her property with a £110,000 interest-only mortgage and invested the proceeds in a £70,000 holiday home in Spain, which was also the intended capital repayment vehicle.
The Spanish property is now worthless and Emptage was left with a mortgage of £110,000 with no means to pay it. Originally, the FSCS concluded only the regulated mortgage advice, not the unregulated property purchase was eligible for redress, which led to the £12,000 award. However, the Court ruled this was “irrational” saying the redress should relate to the “package of advice” and without the advice she would have paid off her £17,000 repayment mortgage by 2015.
This is a clear example of interest-only being mis-sold on the back of unsuitable mortgage advice.
There is a fear that if more cases come to light with pay outs based on evidence of mortgage mis-selling, it will only be a matter of time before ruthless CMCs rush to take advantage of the business opportunity.
There may be little sign yet of claims firms targeting disgruntled interest-only borrowers who’ve reached the end of their term and no means to pay the capital off their home loan. But can anyone say for sure this won’t change over time?
