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L&G ordered to refund client for giving ‘unsuitable’ remortgage advice

  • 19/09/2019
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L&G ordered to refund client for giving ‘unsuitable’ remortgage advice
Legal & General Partnership Services (L&G) has been ordered by the Financial Ombudsman Service (FOS) to pay a client £150 compensation and refund the charges, fees and commission after a customer complained she was given “unsuitable” advice to remortgage her property.


The client, referred to as Mrs T, was advised to remortgage in 2007 when she had an interest-only mortgage of around £45,000 on a variable interest rate of 5.79 per cent.

At the time, she wanted to raise £3,500 for home improvements, and consolidate her credit card debt into the mortgage which had an outstanding balance of £1,620. Her monthly income was £1,430, leaving her with a disposable income of £210.

L&G advised her to take out an interest-only mortgage of approximately £59,000 over an 18-year term at a rate of 5.75 per cent fixed for two years. She paid various fees and had to pay an early repayment charge (ERC) on her existing mortgage of around £1,400.

She was also advised to take out a single premium PPI policy and pay for a will pack, both of which were added to the mortgage.

In 2016, Mrs T complained to L&G as she said the inclusion of the PPI and the will “adversely” affected the advice.

L&G agreed that the sale of the PPI was not suitable and said while the recommendation of the will was suitable as she had a dependent child and no existing will, it agreed that funding it through her mortgage was not.


Cost £4,000 to borrow £5,000

As a result, L&G refunded the client the mortgage interest on the wills package for the duration of the mortgage term, amounting to £46.92. It also offered her £150 for the inconvenience caused.

Although the investigator was satisfied with this outcome, Mrs T was not, resulting in the complaint being referred to ombudsman Alison Cribbs.

Cribbs ruled that the advice to remortgage was not suitable as although Mrs T raised the capital she needed, the £1,400 ERC and £2,800 in fees and costs resulted in Mrs T paying £4,000 to borrow just over £5,000.

The ombudsman found this was “disproportionate” and said there was no evidence the adviser considered alternative means to raise the money.

As well as the refunds and compensation, L&G has been ordered to repay the mortgage interest accrued on the charges, fees and commissions and make a partial payment for the debt consolidation.

Furthermore, L&G was ordered to pay any ERCs incurred if Mrs T wished to use all or some of the refund and compensation money towards her mortgage loan.

Mortgage Solutions has contacted Legal & General for its response to the ruling.


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