The solicitors Pure Legal have brought a number of mis-selling cases against mortgage brokers in recent years.
The defending law firm, RPC, said that the adviser had sold an interest-only mortgage to a couple – the claimants – in 2006. They wanted to consolidate debts into the mortgage, and aimed to convert to a repayment product after three years.
The adviser provided standard documentation, including a key facts illustration, a mortgage suitability report and an application form.
However, the borrowers did not convert, instead falling into arrears, and repossession proceedings were initiated. In 2018, they sold the property and redeemed the mortgage.
RPC said the claimants sought damages of £41,138.85 — the difference in interest between an interest-only mortgage and a capital repayment mortgage, and the amount of capital that would have been paid off under a repayment mortgage.
The law firm said: “The essence of the claimants’ case was that it was negligent to recommend an interest-only mortgage, without there being a repayment vehicle or viable repayment strategy in place, and that switching to a repayment mortgage and overpaying towards the capital were not viable repayment strategies.”
It added: ‘The allegations advanced follow very similar allegations in other Pure Legal cases. The crux being that an interest-only mortgage should not be recommended if a capital repayment mortgage was affordable.”
The judge dismissed the case on a number of grounds.
RPC said: “The fact that the judge roundly dismissed the argument that a claimant did not have knowledge for limitation purposes, to bring such a claim until they were told that they could have afforded and were otherwise eligible for, a capital repayment mortgage at the time of allegedly negligent advice, is key.
“This part of the decision arguably drives a dagger to the heart of claims brought by Pure Legal.”
Positive precedent
Gemma Harle, managing director at Quilter Financial Planning, welcomed the outcome as significant to the wider mortgage advice sector.
She said: “This judgement spells very positive news for the mortgage advice industry.
“The judgement sets a precedent for future cases. The case essentially revolves around the claimants putting forward that their mortgage adviser was negligent to recommend an interest-only mortgage without there being a repayment vehicle or viable repayment strategy in place. The judgement, along with a number of other points, shows that the claimants were well aware of this when they entered into the agreement.
“It is still important to be wary of these types of claims being brought. However, the judgement provides significant firepower for any future cases,” Harle said.
