Broker ordered to pay £60,000 over mis-sold interest-only mortgage
Advance Mortgage Funding Ltd – part of the Pink network – has been told by the Financial Ombudsman Service (FOS) to pay a former client more than £60,000 after an adviser gave unsuitable mortgage advice in 2009.
The client, referred to as Mrs M, used the loan to buy an overseas property with Harlequin and had planned to use rent from the property to meet repayments.
However, the property was never built, Mrs M lost her money and had no way of servicing repayments.
Advance Mortgage said it wasn’t required to give advice on the suitability of the investment.
However, the FOS sided with the complainant.
The ombudsman said the mortgage had not been suitable for the client’s situation.
And that the adviser should have highlighted repayment risks and found out if Mrs M had other means of repaying the debt.
Toni Smith, business operations directors, First Complete and Pink said: “It is our policy not to comment on individual FOS cases.
“However, we respect the ruling and are currently working closely with representatives of the customer.”
Not to compensate for investment loss
In a written final ruling on the case, ombudsman Sue Wrigley said she didn’t uphold the complaint because the investment failed, or to compensate Mrs M for investment loss – but because she was not fully advised of the risks in repaying the mortgage.
Wrigley added: “Without the mortgage I don’t think Mrs M would have invested in the Harlequin property.
“She didn’t have any other savings or investments she could have used.
“So I think it’s more likely than not, that but for the unsuitable mortgage advice, Mrs M would not have invested in the overseas property and would not now be left with a mortgage she can’t afford to repay.”
The FOS said the only way to make the situation right is to put Mrs M in the position that had she never taken out the mortgage.
Advance has been told to repay the £58,500 loan, as well as interest payments on the loan and the mortgage arrangement fee.
Mrs M must also be paid £750 for trouble and upset caused by the situation.
It comes after the FOS last year told Intrinsic to pay compensation for interest-only mortgages, which were also used to fund Harlequin overseas property investments.
LSL’s focus on broker market sees mortgage sales rise 20% year-on-year
In its 2016 full year results, the group said mortgages completed through its financial services division accounted for 7% of overall gross mortgage lending in the market; estimated at £246bn by the Council of Mortgage Lenders.
Some 623 appointed representatives (AR) operate within LSL’s combined mortgage networks, First Complete and Pink Home Loans, making them the second-largest network in the UK. Within these AR firms, there are 1,650 total sellers.
The group bolstered its presence in the mortgage intermediary market with the acquisition of Group First in February. It holds a 65% stake in the mortgage and protection firm.
As the group jostles for a larger share of intermediated mortgage sales, it has taken a noticeable step back from its exposure to the property sales market. In the second half of the year, LSL disposed of its entire shareholding in online property sales portal Zoopla.
LSL chairman Simon Embley (pictured) said after a strong H1 performance in its estate agency division in the run up to the Stamp Duty changes on 1 April, the group took decisive action, following the EU referendum result, to protect its balance sheet. It employed cost-cutting measures, closed estate agency branches and sold its interest in Zoopla, while pausing other acquisition activity.
Profit before tax rose 65% year-on-year from £38.6m to £63.5m after receiving £32.9m from the sale of its Zoopla shares. The group saw a rise in lettings income of 9% and said it plans to monitor the government’s plans to ban letting agent fees, and will contribute to the consultation on the proposal.
Overall, the estate agency division reported a 3% rise in revenue. However, revenue from Marsh & Parsons fell 5% to £33.5m while profits plummeted 36% to £4.4m.
Group chief executive Ian Crabb attributed this to a ‘challenging prime central London market, compounded by the result of the EU referendum which caused transaction levels to drop significantly’. Marsh & Parson’s residential sales transactions dropped 12%.
Looking ahead, Embley said 2017 was likely to see a reduced volume of house purchase transactions compared to last year, with modest house price inflation predicted outside prime central London.
However he added that “mortgage costs and availability remain positive and the medium to longer term fundamentals of the UK housing market remain robust.”
Pink hits record mortgage completions in H1
Compared to the first half of 2015, the volume of completions surged by 32% beating the market average of 23%, according to Council of Mortgage Lenders (CML) figures. The value of mortgage deals completed at Pink in H1 totalled £1.9bn.
Applications at Pink hit £2.3bn for the first time from the beginning of January to the end of June, 23% higher than H1 2015.
Toni Smith, sales operations director at Pink (pictured), said a combination of good availability of products, strong customer demand and new lenders coming to market had created “perfect conditions” for the intermediary market to grow this year.
“During this time, we have maintained our promise to support brokers, and invested in our processes and members. Through these continued commitments the network has retained its market position and gained market share, giving us a strong platform to deliver a memorable performance for the full year,” she said.
“Considering the current degree of uncertainty in the mortgage market, it is more important than ever for lenders and brokers to deliver a holistic offering to their customers. This should include a range of options to suit varying borrower needs, including remortages, second charge loans and later life lending. This approach will help to ensure businesses remain both agile and robust, and importantly, ensure they are able to adapt as the market evolves and new challenges emerge.”
LSL’s mortgage lending surged by 25% in 2015
LSL, which owns First Complete and Pink Home Loans, now has a mortgage market share of 6.6%.
Underlying profit at the group also grew to a record level of £42.9m, an increase of 2% and higher than figures achieved during the peak of the property market in 2007. Meanwhile, group revenue grew by 4.6% to £300.6m, while profit before tax was up from £31.9m in 2014 to £38.6m.
Total mortgage approvals at LSL increased by 8.4% last year to total 1.3m after demand increased in the second half of the year for both house purchases and remortgages.
LSL’s strong results come shortly after the firm acquired a 65% interest in Colchester-based advice firm Group First. The firm said the purchase “further strengthens LSL’s relationships with its key housebuilder clients”.
Despite slow growth in the first half of 2015, the group’s estate agency division pulled rank in the last six months of the year to deliver full year growth of 12% in its lettings business, rising to £65.4m. Residential sales income at LSL also grew slightly to £92.9m, up from £92.1m in 2014.
Simon Embley, chairman (pictured), said: “After a slower first half in the estate agency division, reflecting the overall market, we remained committed to our strategy and delivered a strong second half. The Surveying Division delivered a strong performance with 3% revenue growth and double digit profit growth.
“The Group has a robust balance sheet with relatively low levels of gearing and is very cash generative at an operational level. The business is well positioned to capitalise on the changing market conditions to increase shareholder value.”
Mark Graves does u-turn on appointment and joins Sesame
Graves (pictured) will join the group next week reporting to executive chairman John Cowan. He will work alongside managing director Stephen Gazard overseeing the group’s propositions across its three advisory brands.
SBG executive chairman John Cowan said: “Mark has built a strong and successful track record based on his close working relationship with adviser firms. It was clear from our first meeting that he is the ideal person with the right credentials to further strengthen our experienced executive team. We are thrilled that Mark has agreed to join us and help to quickly put our plans into action.“Following the completion of our strategic review we are now focused on the future. This appointment is a further signal to our members, clients and staff, along with the wider market, that we are absolutely committed to driving our business forward as we embark on a new phase of growth and development.”
Graves added: “I have been impressed by the group’s strong team ethos and its commitment to working closely with advisers on a range of valuable new initiatives.”
Ex-director of mortgages Lisa Martin departed from Sesame Bankhall-owned PMS in September after three weeks of being at the role.
Previous to this, John Cupis held the position of managing director of mortgages at PMS for eight years, before moving to Openwork as the network’s mortgage director.
Graves spent three and a half years running Pink’s network and was due to join The Right Mortgage and Protection Network on 1 November, which was set up by Martin Wilson in the second half of 2014.
During his time at Pink, Graves was infamous for his commitment to the protection market, which saw him require Pink brokers to carry out protection stress testing on every mortgage and demand proof of income protection provision from new advisers joining the firm.
In June the network announced it would increase fees for less active brokers. Graves commented at the time that ‘it was not fair’ that the minority of brokers which wrote little or no business were ‘subsidising’ other members.
Part-time brokers should not pay extra network fees say brokers
A Mortgage Solutions poll with 109 respondents revealed that two thirds of brokers think that such a move is unnecessary, compared to 39% who were in favour of such action.
Pink Home Loans made the move to increase fees for less active brokers last week, in order to ensure all advisers were contributing “their fair share”.
Julian Harris Mortgage Network CEO Julian Harris said the issue is one that the network had grappled with for a number of years.
“We have to cover our flat training and competence supervising costs in respect of a low producing adviser, but do not wish to alienate them by having an accumulative monthly fee, which can wipe out most of their income. We have found that the most palatable solution that usually covers our costs is to have a higher network percentage retention for the very low producers,” he said.
“For advisers that produce less than £2,250 of total commission and procuration fees in a quarter, we charge 30% in the following quarter, rather than our standard 15%. This is a very low threshold and as mentioned, needed to cover our flat training costs. We do not take anything from their broker fees,” Harris explained.
In 2013, Personal Touch Financial Services stated it was ‘weeding out the mortgage dabblers’ by adopting a deliberate strategy to downsize the network and restructure its fee model. The network’s five-year plan is to create a smaller, higher quality advice network, with a focus on consumer outcomes and professional standards.
David Carrington, sales and marketing director at Personal Touch, said there was a strong case for dabblers to be subject to extra fees.
“Our experience is that, in general terms, this type of adviser presents greater risk to a network and there is a greater chance of poor customer outcomes. If you need a doctor to perform a heart bypass would you rather choose a surgeon who conducts the operation every day or a part time GP who dabbles once a month?
“We addressed the issue of dabblers three years ago as part of the restructuring of our network and it is encouraging to see others follow our lead, albeit a long time afterwards.”
Pink to increase fees for less active brokers
Head of network, Mark Graves (pictured), said while Pink had not increased its broker fees, it had identified a number of advisers who were not writing business full time. Graves said the networks would be increasing charges for these brokers in order to ensure they contributed “their fair share”.
The network reviews its costs in July each year, but Graves did not confirm when Pink would be raising its fees.
He said: “In analysing its business this year Pink has identified that there are a minority of individuals who are writing little or no business and are not working full time. We do not think that it’s fair that the more successful advisers should be subsidising those who are writing very little.
“Therefore, in order to be fair, we are increasing the charges for these individuals to ensure that they contribute their fair share to the running costs of the business. We are still trying to accommodate the people in the network who are not writing business full time but this clearly comes at a cost. The majority of Pink members will not be affected by this rise and see this as a positive move.”
Earlier this year, the Financial Conduct Authority proposed a minimum broker fee hike of 8.4%, raising the lowest fee payable by a firm from £1,000 to £1,084. However, with a new levy to undertake consumer buy-to-let costing £350, combined with additional undisclosed and unclear charges, AMI chief executive Robert Sinclair said firms were likely to see their bills rise by far more.
Failing to talk protection with mortgage clients ‘irresponsible’
According to the poll, just 22% of respondents did not think a discussion involving income protection was needed alongside mortgage advice.
In February, Pink Home Loans announced its advisers would introduce stress testing on every mortgage, requiring customers to provide their work contracts with any evidence of sick benefit entitlement and protection policies to allow its brokers to proceed with an application.
Pink said its mortgage customers would not be forced to take out protection if the stress test found they would not be able to meet their mortgage payments.
First Complete sales operations director Toni Smith said she encouraged any opportunity for brokers to discuss protection with their mortgage customers.
“I think it’s irresponsible not to discuss protection. Having said that, it should not be compulsory to sell protection unless the client needs it.”
Smith said she ‘fully endorsed’ Pink’s recent proposition.
“I think it brings home to the customer the importance of being able to afford their mortgage and understanding the vulnerability of their overall financial position should anything happen to their employment once they’ve got a mortgage. The two things are absolutely integral, one without the other is irresponsible lending,” she added.
Dean Mason, practice principal, Masons Financial Planning, said that making income protection rules simpler would help to make the product more attractive.
“Many (especially the self-employed) understand the implications of losing income due to illness and injury and as long as the cost is reasonable to them, I believe this would be more palatable to the public than if similar rules were applied with life cover for example,” he said.
“The main issue here is underwriting of course; firstly income protection can be rated or have exclusions for relatively minor illnesses or medical issues.
Mason added that there were risks to forcing mortgage customers who needed income protection to take up the insurance.
“Secondly how would the regulator look if we are saying that those who’ve recently suffered from cancer or have had heart attacks, for example, can’t move or buy their first home because they can’t get income protection or the cost is prohibitive? Personally while it has the best intentions, I see this as a logistical, PR and regulatory minefield.”
London & Country adds Magellan to lender mix
London &Country, the UK’s largest no-fee mortgage broker with offices in Bath and Newcastle-upon-Tyne confirmed the agreement added Magellan to its broadening mix of lenders.
“We are glad Magellan are there to be able to help a niche section of our customer-base,” said London & Country.
Jon Sturgess, head of sales at Magellan Homeloans, said: “We’re delighted to have been appointed by L&C as an approved specialist credit repair lender and are looking forward to working closely with their advisers and clients over the coming months.
“Our proposition is designed to help borrowers who can explain and document the reasons for their financial difficulties and can demonstrate they have not incurred any new adverse credit during the last 12 months. We don’t use credit scoring, preferring instead to assess applications based on their own merits.”
Magellan’s products are also available through networks including Sesame, Intrinsic, IN Partnership, Tenet, Pink Home Loans, First Complete, Homeloan Partnership, Mortgage Advice Bureau and The Whitechurch Network.
HomeLoan Partnership appoints Merriman
Merriman was previously Pink Home Loans’ head of sales for nearly six years, and regional sales manager at Mortgage Express with a history of underwriting before that.
Merriman added: “I have been immersed in the mortgage market for the past two decades, and see this as a fantastic opportunity to work with one of the few independent networks who focus solely on mortgage advisers/brokers, and deal with people rather than numbers.
“HLP still offers brokers a true whole-of-market proposition across the board, turning away from the current trend of offering restricted panels and, therefore, loaded premiums for clients.
“HLP’s strapline, ‘Big enough to count, small enough to care’, serves as our reminder that a network is only ever as successful as its members, so they must be at the heart of the business – I am very much looking forward to meeting more members of the network at our upcoming MMR Training Seminars in March and April. “
HLP chief executive, Christopher Tanner, said: “We are delighted to welcome Ian to the firm. He brings with him a wealth of experience, knowledge, and an enviable reputation for providing exceptional customer service and support, enabling mortgage and protection specialists to grow and develop their businesses successfully.”