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Expat Investor : April 2008
Going for broke with a mortgage broker These case studies, recently dealt with by the Financial Services Ombudsman, illustrate how some borrowers become confused as to where responsibility lies when something goes wrong with a mortgage arrangement. F IXED RATE VERSUS TRACKER After consulting a mortgage broker, Ms J took out a mortgage that offered a fixed interest rate for two years. Soon after the fixed-rate period ended, she visited the broker again. She asked him to arrange a re- mortgage as she was having difficulties affording the new – variable rate – repayments. On the broker’s recommendation, Ms J agreed to take out a mortgage offering a 2-year ‘tracker’ deal. With mortgages of this type, the interest rate is usually directly linked to the Bank of England’s base interest rate and rises (or falls) right away – as soon as the Bank of England announces a change. A couple of days later, Ms J contacted the broker to say she had changed her mind and would prefer the certainty of a mortgage with a fixed rate of interest. The broker agreed to arrange this for her. However, as she later discovered, he never got round to doing so. When Ms J rang him a few weeks later to find out what was happening, the broker had to admit that he’d left it too late to act on her request. Her application for the ‘tracker’ mortgage had been accepted by the lender and the new arranging a re-mortgage, and could not reasonably have realised that this might also affect a separate property purchase. So the Ombudsman upheld the complaint in part, ruling that the broker should pay Ms J compensation to cover the difference between what she would have paid, if she’d had the mortgage she had asked for, and the total amount she was likely to have to pay over the same period with the ‘tracker’ mortgage. The broker should also pay Ms J £250 for the distress and inconvenience his error had caused her. U NNECESSARY RE - MORTGAGE After visiting a mortgage broker, Mr and Mrs C obtained a mortgage that offered a special rate of interest for the first two years. Towards the end of the two-year period, the broker made an appointment to see them again, to discuss their mortgage options. He told the couple that when the two-year deal came to an end, the interest rate on their mortgage would increase and they would then have to pay the lender’s standard variable rate. So he said it would be better for them to take out a new mortgage with a different lender. Acting on the broker’s recommendation, Mr and Mrs C re- mortgaged. However, some months later they discovered that if they had stayed with the original lender, the rate would not have increased in the way they had been led to believe. The broker refused to accept responsibility for the costs the couple had incurred as a result of a re- mortgage that had not, as it turned out, been necessary. Mr and Mrs C then referred the complaint to the Ombudsman. Complaint upheld The Ombudsman found that the broker had misled Mr and Mrs C. Before recommending what he had told them was a ‘more suitable’ deal, MORTGAGE INTERMEDIARIES expatinvestor.com 18 EXPAT INVESTOR ? April 2008 he should have carried out a proper review of the terms of their existing mortgage. He admitted that he had failed to do this. The Ombudsman ruled that he should refund Mr and Mrs C’s re-mortgage costs and pay them £150 for the inconvenience he had caused them. C OMPENSATION DEMAND Mr and Mrs D were keen to pay off some large debts and thought the best way to raise the money they would need in order to do this was to re-mortgage. They therefore consulted a broker. The couple gave the broker details of their existing mortgage but told him they were not sure whether their existing lender would make them pay an early repayment charge, if they changed to a different mortgage at this stage. The broker undertook to check on this before proceeding with the re- mortgage. However, he then forgot to do so. Mr and Mrs D were annoyed to discover, in due course, that they had incurred an early repayment charge on their old mortgage. They said that if the broker had checked things out properly, as he had promised, then they would have postponed the re-mortgage until the end of the period when an early repayment charge was payable. Complaint upheld in part The Ombudsman thought it likely that Mr and Mrs D would have wanted to avoid paying the early repayment charge if at all possible – and might therefore have wanted to postpone the re-mortgage. But it also noted that the money they raised by re-mortgaging had enabled them to pay off a number of debts – thereby saving themselves a considerable amount of interest. The Ombudsman said the broker should pay compensation to Mr and Mrs D. It calculated the amount he should pay, taking into account what the couple had gained – as well as what they had lost – as a result of mortgage arrangement had already been set up. Within a relatively short period after Ms J had changed to the new mortgage, the Bank of England increased interest rates several times – so there had been immediate, corresponding, rises in Ms J’s repayments. Ms J complained to the broker and asked him to pay her compensation. She said that because of his oversight she now had ‘the wrong type of mortgage’ and was unable to afford the repayments. She said the broker should also compensate her for the fact she had not been able to proceed with the purchase of a new flat. This was because of the very high cost of the mortgage repayments she was now having to make. When the broker refused her request, Ms J took her complaint to the Ombudsman. Complaint upheld in part The Ombudsman established that that the broker could easily have obtained a fixed-rate mortgage for Ms J, had he dealt promptly with her request. Ms J said that at the time she applied for the re-mortgage she had been planning to buy a new flat. The Ombudsman accepted that the increased cost of her mortgage meant she had lost the opportunity to buy the particular property she had wanted. However, it was not persuaded that the broker should be liable for that. The broker was only ever “... ruling that the broker should pay Ms J compensation to cover the difference between what she would have paid, if she’d had the mortgage she had asked for, and the total amount she was likely to have to pay over the same period with the ‘tracker’ mortgage.” “They said that if the broker had checked things out properly, as he had promised, then they would have postponed the re- mortgage until the end of the period when an early repayment charge was payable.”
May June 2008