The mutual said the move was in line with its terms and conditions; the affected borrowers complained those terms and conditions were buried in the small print of the mortgage contract. Some also worried that other lenders could follow in the West Brom’s footsteps and raise rates as well.
The Financial Conduct Authority has stressed the West Brom case is not a green light for lenders to raise rates. It has announced a consultation on the question of mortgage contract small print in the autumn. But in the meantime, what can advisers do to help clients understand the mortgage contract small print?
For this week’s Marketwatch, our commentators are:
John Charcol senior technical manager Ray Boulger, who says brokers cannot hope to keep up with the small print but can draw on their experience of working with lenders
Goldsmith Williams partner Eddie Goldsmith, who says their role as mortgage professionals means brokers have a responsibility to look at terms and conditions on their client’s behalf
The Financial Ombudsman Service, which encourages brokers to talk clients through what they would do if there was a rate rise
Ray Boulger, senior technical manager, John Charcol
It is completely unrealistic to expect brokers to know details of the small print of every lender, bearing in mind lenders do not generally give brokers all that information anyway. We could ask for it but it is challenging enough to keep up to date with criteria and pricing. In any case, many lenders have small print which effectively allows them to do anything they like.
One of the key benefits a broker can bring to the decision of which lender to use is experience of how the lender operates in practice. Anyone can turn on their computer and get a list of mortgage rates. It is not about that. It is about the softer facts such as how lenders treat customers when there is a problem.
I would strongly encourage a broker to respond to the FCA consultation on the small print. It will be very interesting to see the responses of lenders. That could provide some useful guidance for brokers of which lenders it is safe to do business with.
Brokers should tell their customers about unfair terms in consumer contract legislation. This was introduced to address the problem that the balance of power between a consumer and a major company is not even.
Eddie Goldsmith, partner, Goldsmith Williams
Brokers are operating in a professional capacity for their clients, just as lawyers and accountants are, and they have a responsibility to those clients to make sure the clients understand what they are getting into.
Where there are so many terms and conditions, often in small fonts, it is difficult to work out which terms and conditions you should give particular emphasis to. In the case of the West Brom, they clearly told the clients that they had a right to raise the rate. That is a material and important factor however small that print is.
Although the client has a responsibility to read the small print there is a growing feeling that material matters should be specifically pointed on to a client. The lesson to learn from this is that brokers, because of their professional capacity, have to try to inform clients. But it is subjective to the client what is material and immaterial.
If a client wants to complain, the first route is back to the lender to say, ‘This wasn’t pointed out clearly and I wouldn’t have taken this out if I had known that.’ The second step would be to take a complaint to the Financial Ombudsman. Brokers should also keep an eye on what is already going on in terms of complaints and test cases.
The Financial Ombudsman Service
With so many different types of mortgages on the market, it’s vital that your client understands their ‘tracker’ from their ‘offset’ and know exactly what they’re getting themselves into.
Advisers are a good first point of contact for borrowers to explore exactly what they want from a mortgage and what deals best suits their needs. Encourage the borrower to think about what they imagine their circumstances may be in a couple of years’ time. For example, could they afford the repayments if the lender decides to increase the rates? If they plan to pay off their mortgage early, are there any early-repayment fees they need to be aware of?
Mortgage contracts aren’t traditionally the most user-friendly document and can be full of complicated jargon. If the borrower is not sure about anything in the agreement, the adviser should be ready to explain it in plain English and look out for those terms that could impact on their client’s future plans.
The conversations and any information given to the client should be recorded, in order to refer back to further down the line if things don’t work out as planned. If the borrower finds themselves in a situation where they feel their lender has treated them unfairly, encourage them to contact the ombudsman – we may be able to help.
