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case studies about interest-only mortgages

Jon

 

the business told me to take an interest-only mortgage - now they're saying they're not responsible

Some people tell us they’ve complained about their interest-only mortgage, but the business they’ve complained to is saying they’re not responsible.

  • Some people receive financial advice when they’re buying a mortgage. In general, this means the business they get advice from is responsible for making sure the mortgage is suitable. If a borrower doesn’t get advice, this generally means it’s their responsibility to choose the mortgage they think is right for them.
  • In some cases where people tell us they’re unhappy with their mortgage, the broker or lender says they didn’t give advice. Or there might be confusion about whether it was the broker’s or the lender’s responsibility to make sure someone had a suitable mortgage.
  • It’s usually clear from the paperwork whether a mortgage was sold with or without advice. Certain customers must be advised when choosing their mortgage - for example, people looking to consolidate debts, or buying a property on a “right to buy” basis.
  • If someone thinks they got advice - but the paperwork suggests they weren’t, we’ll consider the information they were given during the sale - and decide whether it was clear that the business involved wasn’t making a recommendation.
  • If someone’s received advice through a broker, we’ll generally put more responsibility on the broker for making sure the mortgage was suitable. But following rule changes in 2014, it’s the lender - not the broker - who’s responsible for checking someone’s got a plan for repaying the capital. We’ll always apply the rules that applied at the time of the advice that’s being complained about.
  • Time limits apply to making a complaint. And sometimes businesses say we can’t look into a complaint because the mortgage was sold more than six years ago. But if we decide someone could only reasonably have known within the last three years that there might be a reason to complain, we’ll usually be able to help.
  • Once we’ve established we can look into the complaint - and who’s responsible - we can decide whether an interest-only mortgage was suitable.

case study 1

Mr A took out an interest only mortgage in 2001 - and complained in 2014 that he didn't have a way of repaying it.

The lender argued that Mr A’s mortgage was suitable - and when he contacted us, they said we couldn’t consider his complaint under the “DISP” rules. They said Mr A had taken out his mortgage more than six years ago - and that, due to the paperwork he’d been sent, he should have reasonably known more than three years ago that he had cause to complain.

We considered the information that Mr A had received about his mortgage over the years. We didn’t find anything that could have prompted Mr A to realise there his interest-only mortgage wasn't suitable for him. So we decided we could look into his complaint.

Julie

 

I should never have been sold an interest-only mortgage

  • We hear from people who say they can’t pay off their mortgage at the end of the term - and feel that an interest-only mortgage wasn’t right for them in the first place. We’ll look into why the business decided that an interest-only mortgage was a suitable option - and whether they considered their customer’s individual needs and circumstances.
  • We’ll also check the borrower received clear information about the arrangement they were signing up for. To do this, we’re likely to ask for documentation such as the “fact find”, application form, offer and any illustrations - as well as asking the borrower what they remember about the sale.
  • Some problems arise because the borrower’s circumstances changed after the mortgage was sold. If the mortgage was suitable for the borrower at the time they took it out - and they had a realistic plan to repay the balance - we’re likely to decide there wasn’t anything wrong in the way the mortgage was sold.
  • If we decide a broker or lender did something wrong, we’ll consider the customer’s circumstances - and think about what they might have done differently if the mistake hadn’t happened. For example, were they expecting their earnings to rise? Would they have taken out different mortgage, or put a repayment vehicle in place? Would they have taken out a mortgage at all?
  • If we decide someone’s lost out, we’ll tell the business responsible to put things right. If we don’t think the mortgage should have been sold at all, this might involve refunding the costs of setting up and exiting the mortgage.
  • If we decide the mortgage wasn’t unsuitable - but it doesn’t look like the borrower will be able to repay the capital -we’ll encourage them to work constructively with the lender to put in place a realistic repayment plan.

 

case study 2

Mr and Mrs B complained that their bank had sold them an unsuitable mortgage - but the bank said they hadn’t given advice.

All the mortgage documentation said the sale was non-advised basis. The bank sent us a copy of the script they’d used when they sold Mr and Mrs B’s mortgage was taken out - along with a statement from the employee who’d sold it, setting out their experience and understanding of the sales process.

On balance, we decided it was likely the bank had followed its process - which would have meant Mr and Mrs B were presented with a range of products in a neutral way. So we decided the bank hadn’t given advice.

Julie

 

I can't afford to pay off my mortgage - but the lender won't help

We hear from people who don’t think they’ll be able to pay off the capital at the end of their interest-only mortgage - and aren’t happy with the way the lender has responded to their concerns.

  • From our experience of dealing with these types of problems, we know how important it is for people to tell their lender straight away if they think they’ll have trouble paying off their mortgage.
  • So if someone’s raised concerns, we’ll check the lender responded constructively - looking at possible options for helping their customer. These might include switching - completely or partly - to a repayment mortgage, or reaching a reasonable repayment plan.
  • If we decide that a lender hasn’t done enough to help their customer, we’ll tell them to put a fair arrangement in place, based on their customers’ individual circumstances. And it’s likely we’ll tell the lender to pay compensation to recognise the stress and upset their actions have caused.
  • Some people tell us they didn’t know they’d need a repayment vehicle - or that their repayment plan didn’t turn out how they’d thought. This could suggest something went wrong when the mortgage was sold. So we might need to consider whether it was right for the lender to sell an interest-only mortgage in the first place.

case study 3

Mrs C complained her bank had sold her an unsuitable mortgage - but the bank said they hadn’t given Mrs C advice.

The bank sent us a copy of the script they said they’d used - but it wasn't relevant to Mrs C’s type of mortgage. Other evidence we saw suggested that Mrs C was only given details of one mortgage product. In the circumstances, we decide the bank had given Mrs C advice

case study 4

After visiting a new housing development, Miss E and Mr F were advised by the onsite broker to take out a ten-year interest-only mortgage. Miss E’s father later complained that the couple hadn’t understood what they were signing up to. He said they’d tried to sell their flat, but the market value was lower than the mortgage balance.

At the time Miss E and Mr F took out the mortgage, they’d both been in low-waged jobs. Miss E, who had learning difficulties, had been living with her parents and Mr F had been renting. In our view, they couldn’t have afforded to save towards repaying their mortgage - and from what we saw, the broker hadn’t done enough to explain the consequences of having an interest-only mortgage. It didn’t seem the couple could have afforded any type of mortgage that would have enabled them to buy a property in that area.

We told the broker to refund the costs of setting up and ending the mortgage. And we said that if Miss E and Mr F sold their property for its market value with a year, the broker should pay the difference between the selling price and the balance of the mortgage.

case study 5

Mrs D said she’d thought she had an repayment mortgage, but had recently discovered it was interest-only. She didn’t have a repayment vehicle in place and complained that the mortgage wasn’t right for her.

The income and expenditure assessment carried out by the lender - who’d given Mrs D advice - showed that Mrs D could have afforded a repayment mortgage. The fact find didn't include any details of a repayment vehicle - and the lender hadn't and couldn’t explain why they’d recommended an interest-only mortgage.

Mrs D had previously had a repayment mortgage, and this type of mortgage would have been clearly affordable for her. We told the lender to put her in the position she’d be in if they’d sold her a repayment mortgage in the first place.

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