The FOS decided the firm was wrong to advise its client to take out a lifetime mortgage and should have instead told him to use a tax free lump sum from his pension to fund an investment.
Mr and Mrs C were in their early sixties when they decided to approach an equity release lender to help them raise a pot of money to buy a motorhome.
The firm’s in-house adviser recommended the semi-retired pair take out a lifetime mortgage to the tune of £25,000.
When Mr C retired a couple of years later he decided to pay off the lifetime mortgage using a tax-free lump sum from his pension, only to find he owed £40,000 in interest and early repayment charges.
He complained the adviser should have told him about the possibility to take a lump sum ten years earlier, when he was aged 55, instead of taking out the more expensive product, but the company did not accept it was their adviser’s fault.
After looking through the adviser’s record of the meeting at the time, FOS decided the firm had given bad advice – it had asked questions about the couple’s pension arrangements but failed to advise them of the lump sum option.
“We saw from the records that the ability to repay early was listed as one of the couple’s priorities. In fact, the adviser’s notes suggested that Mr C had said he was likely to do this. In light of this, we weren’t sure that a lifetime mortgage was right for Mr C,” the FOS said.
“We found that the adviser had noted that Mr C planned to work until he was 65.
“It was also noted that if one of the couple died, their pension arrangements meant the other would have enough to live on. This strongly suggested that the adviser had known about Mr C’s pension. But it didn’t seem that the adviser had looked into – or mentioned to Mr C – the option of taking a lump sum,” it added.
The FOS decided it would have “probably” been the couple’s preferred choice to take the lump sum.
It ordered the equity release company to pay the difference between the original £25,000 taken out and the cost of the mortgage plus 8% interest. It also told it to refund with interest the fees and charges Mr and Mrs C had paid to set up the mortgage.
