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ombudsman news

issue 55

August 2006

complaints against mortgage intermediaries

This article outlines our experiences to date in dealing with complaints involving mortgage intermediaries, and includes several recent case studies. It also sets out some key points that we hope mortgage intermediaries may find helpful.

We have seen a steady but fairly moderate stream of cases involving mortgage intermediaries since they joined our compulsory jurisdiction when they became regulated by the Financial Services Authority (FSA) in October 2004. Matters complained about have - in the main - been advice, charges and administrative failings. That accords fairly closely with the sorts of complaints we were already used to seeing about mortgage lenders, who were covered by our jurisdiction before October 2004.

Most of the mortgage intermediary cases referred to us have been resolved informally at an early stage in our process - again reflecting our experience of the same sorts of complaints against mortgage lenders. And we have found most mortgage intermediaries are happy to discuss cases (and how to resolve them) directly with our case-handling staff, often saying how useful they find it to be able to do this.

Some of the smaller mortgage intermediary firms, particularly those with no previous experience of dealing with us, have needed a greater degree of information from us than the larger firms. We have tried to meet the needs of these intermediaries by ensuring they are aware of the different stages in our process, and by keeping them regularly updated about progress of the complaint in question - in much the same way as we keep consumers informed.

From our experience, it would appear that some smaller firms have found it difficult to present their arguments with the necessary degree of professional detachment. This has been especially evident where the individual dealing with the complaint for the firm has also been the subject of the complaint. This lack of objectivity has not affected the eventual outcome of the complaint, when referred to us. However, it has sometimes had an adverse effect on the length of time it has taken us to achieve that outcome.

We are still dealing with a certain number of transitional complaints - those made after mortgage intermediaries came under our compulsory jurisdiction but concerning events that happened at an earlier date. In such cases, if the firm complained about was previously covered by the Mortgage Code Arbitration Scheme, then we can deal with the complaint. We do not apply the current regulatory provisions retrospectively. We apply the standards that would have applied at the time of the events complained about - those of the Mortgage Code.

If the firm was not previously covered by the Mortgage Code Arbitration Scheme, then we cannot consider any complaints against it which concern events that took place before the firm joined our compulsory jurisdiction. Some consumers find it difficult to understand this and can be reluctant to accept that we cannot help in their particular case.

When dealing with transitional complaints, we often find that the firm holds few paper records of its discussions with the customer, or of what was agreed. Some firms find it difficult to understand why we ask to see any written records, since there was no specific record regime in force at that time. But since contemporaneous written records are normally very persuasive evidence, we always ask both parties whether they have anything in writing that might back up their case.

Regardless of when the transaction took place, we apply our usual approach - which is to decide what we think probably happened, on the basis of such information and evidence as the parties are able to provide.

Some mortgage intermediaries, particularly small firms with little experience of our procedures, can be very unsure about how to present their case to us. As a result, some of them spend much longer than is strictly necessary in dealing with our requests. Others fail to make their case effectively because they are concentrating on the wrong things.

We hope that mortgage intermediaries may find the following key points helpful. They are all matters we frequently stress when we talk to firms generally about our approach to handling complaints.

helping you to help us

answering questions from the ombudsman service

  • Remember that the ombudsman service is impartial. There is no need to be defensive in your response. Our questions are designed to find out what actually happened - not to trick you.
  • If an adjudicator telephones you to discuss a case, this will be simply to check a small point quickly or to establish if it may be possible to resolve the dispute informally. Our adjudicator will probably have had a similar discussion with the consumer.
  • Always provide the information that the adjudicator has asked for, not what you hoped they would ask for. Otherwise, we will have to contact you again - which delays matters as well as wasting your time and ours.
  • If you have other relevant information or evidence that you believe the adjudicator needs to see, then provide that as well - and explain why you have done so. If you are unsure, you can always telephone the adjudicator to check first.
  • Never ignore a question that you cannot (or would rather not) answer. The adjudicator will notice this and will follow it up.

case studies

complaints against mortgage intermediaries

whether mortgage intermediary's actions were responsible for customer's adverse credit rating and inability to obtain as low a rate of interest as expected

Mr A asked the firm to arrange a re-mortgage so he could repay some unsecured debts and reduce his monthly repayments. He said the firm had advised him that he could safely ignore letters from his existing mortgage lender about his mortgage arrears, since they were simply the result of 'administrative muddle'.

But Mr A's existing lender then registered adverse credit reference information against him. There was a delay before he was able to obtain a re-mortgage and he was charged a higher rate of interest than he thought he could have obtained without the adverse credit reference.

Mr A blamed the intermediary, complaining that he had lost out because of its advice to ignore the letters about his arrears. When the firm rejected the complaint, Mr A came to us.

complaint upheld in part
We were satisfied, from our investigation, that the intermediary had indeed told Mr A not to bother replying to the arrears letters. Mr A had acted on that advice. The firm accepted that this had caused Mr A some inconvenience and embarrassment, and it agreed to pay him £200.

However, we discovered that Mr A had not been entirely open with the firm. He had other credit problems that he had not mentioned. So we were not persuaded that the firm's incorrect advice had been responsible for the delay, or for Mr A's having to pay a higher interest rate for the re-mortgage, and we did not uphold that part of his complaint.

whether intermediary's delay in processing mortgage application resulted in customer having to pay substantially increased price for her property

Ms M complained about an intermediary firm's handling of her mortgage application. She said it had suddenly withdrawn from the transaction without any warning or explanation. She complained that as a direct result of this she had been forced to pay £5,000 more for her property than the amount originally agreed.

complaint mainly rejected, mediated in part
Our investigation did not identify any delay on the firm's part in processing the mortgage application. And we were not persuaded (from the evidence Ms M provided) that the increased purchase price of the property was linked to anything the firm had done (or failed to do). So we rejected this part of Ms M's complaint.

The firm told us that, from the outset of its dealings with her, Ms M had been persistently rude to its staff. It was because of this rudeness that the firm had decided not to proceed with the transaction.

We accepted that the firm was not obliged to continue dealing with a customer who was habitually rude to its staff. However, Ms M did not appear to have any idea that her manner had caused offence. And the firm admitted to us that it had never mentioned to Ms M the effect that her behaviour was having.

In our view, when the rudeness first became a problem, the firm should have spoken to Ms M about it. The firm accepted this. It also accepted that it should have warned her that it would not continue to do business with her if she did not modify her behaviour. It agreed to our suggestion that it should pay Ms M £100 for the inconvenience caused by its sudden withdrawal from processing her application.

whether intermediary failed to meet consumers' timescale for arranging their mortgage, resulting in additional costs for them

Mr and Mrs J's complaint concerned the firm's handling of their application for a re-mortgage. They said they had made it clear from the outset that this transaction had to be completed within a fixed (and rather short) timescale.

In their view, the firm's failure to arrange the mortgage within that timescale had caused them to incur additional costs. The couple also complained that the firm had not made it clear to them what fees it would charge.

complaint rejected
We were satisfied that Mr and Mrs J, and some third parties, had always been in agreement that the re-mortgage needed to be completed within a tight schedule. However, we found no evidence that Mr and Mrs J had ever told the firm this.

The firm had not dealt with the application as quickly as Mr and Mrs J had wanted. However, it had still handled the application in a timely manner and we did not consider it was at fault. And we were satisfied from the evidence the firm provided that it had explained and documented its fees clearly at the outset. We therefore rejected the complaint.

whether mortgage intermediary acted correctly in charging a fee even though it never completed customer's mortgage transaction

Ms D asked the intermediary firm to arrange a mortgage so that she could buy her council house. In the event, she did not go ahead with the purchase so the mortgage was never completed. However, in accordance with the agreement Ms D had signed, the firm sent her an invoice, charging a substantial fee.

Ms D refused to pay. She insisted that the firm had told her she would only have to pay a fee if she went ahead with the mortgage.

The firm rejected her complaint, saying that according to its terms of business, she had to pay a fee whether or not the mortgage was completed.

complaint upheld
We thought the terms and conditions relating to the firm's fee were onerous. There is a legal rule that a particularly unusual or onerous term, which would not generally be known to customers, is only binding on the customer if the firm has brought it fairly and reasonably to their attention before the contract is made. So it is very important that any such term is expressed clearly and placed in a reasonably prominent position in the agreement.

In this instance we found that the terms and conditions relating to the firm's fee were not given any prominence. We also found that the wording was ambiguous. So, applying ordinary legal principles and the relevant Mortgage Conduct of Business rules, we decided the firm was not entitled to insist that Ms D paid the fee.

The firm agreed with our recommendation that it should waive the fee, apologise to Ms D and pay her £250 for the inconvenience and worry she had been caused. It later told us that in the light of our comments on this particular case, it had amended the wording of its agreements in order to clarify the terms and conditions.

whether we can deal with complaint about mortgage for an investment property taken out before mortgage intermediaries joined our compulsory jurisdiction

Mr K, who worked abroad, wanted to buy a property in the UK that he would let out to tenants. He asked the intermediary to arrange a mortgage for him.

Mr K subsequently complained that the mortgage the firm had recommended was unsuitable for him. And he said that because he had only realised this at the last minute, the firm's poor advice had wasted his time and money.

complaint outside our jurisdiction
The events complained about had taken place before mortgage intermediaries joined our compulsory jurisdiction. We can only deal with such complaints if they fall within our 'transitional' jurisdiction.

The firm had previously subscribed to the Mortgage Code. However, the complaint was not one that would have been eligible for consideration by the Mortgage Code Arbitration Scheme. This was because the mortgage was intended for an investment property. Under the transitional rules, this was therefore not a complaint that we could deal with.

whether intermediary misled customers about amount they could borrow and time required to process their mortgage application

Mr and Mrs G complained about the intermediary firm they had asked to arrange their mortgage. They said the firm had misled them about both the amount they would be able to borrow and the length of time it would take to process their application.

The couple said the resulting problems with their application had forced them to obtain expensive bridging finance in order to complete their property purchase. They thought the firm was directly responsible for their incurring this additional expenditure.

complaint upheld in part
Mr and Mrs G made their complaint to firm A. This was the lender to which they had applied for the mortgage. Firm A had outsourced the administration of applications to a separate entity, an intermediary - firm B. However, firm A was responsible for firm B's actions in carrying out the mortgage application process.

Our investigation showed that firm B had indeed given Mr and Mrs G misleading information about the mortgage application. And we were satisfied that this had caused the couple a considerable amount of worry and inconvenience. We therefore recommended that firm A should pay the couple £400 compensation.

However, we established that the couple had chosen to go ahead and exchange contracts for the property they wished to buy, even though they knew they had not been offered a sufficiently large mortgage to meet their needs. So we did not agree that the firm should bear the cost of the bridging finance.

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ombudsman news issue 55 [PDF format]

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.