The Bigger Issue
Mis-sold mortgages are a fact of l
what should the industry be doin Each month Mortgage Introducer takes a look at the bigger issues. This month: Wha
The financial services sector should acknowledge mis-sold mortgages are a fact. It is important we realise and accept the extent of the problem and that thousands of borrowers have been adversely affected.
The objectives of sustainability and consumer protection in the Mortgage Market Review should be embraced and should ensure the way mortgages were sold to borrowers never happens again. Very few lenders with the exception of most mutuals can say they were not guilty of irresponsible lending practices. The greed for market share was not sustainable and lending criteria and underwriting processes often allowed or encouraged brokers to sell unsuitable or unaffordable products. The perception that sub-prime or specialist lending was at the heart of the problem is also wrong. Larger mainstream lenders were also guilty of irresponsible lending. There are thousands of borrowers left on standard variable rates past retirement age who have no way out and are struggling to make repayments. It should be accepted that borrowers who have suffered loss or
who are experiencing financial hardship as a result of being mis- sold a mortgage are entitled to help and compensation. They can complain to the Financial Ombudsman Service or go to a specialist who understands the market offering expert mediation services, ensuring they are compensated correctly; often the FOS limit of £100,000 is not sufficient. The Financial Services Compensation Scheme is set up to
provide cover to consumers who may have been mis-sold a product by companies who have gone bust or ceased trading, however, in many cases the £50,000 limit for mortgages will not be sufficient to cover the compensation due. But how will all this be paid for? Heavy fines are being levied on culprits and more are expected. The good guys should not carry the cost for those who have caused the problem. This is something that must be addressed as matter of urgency. The industry has a great opportunity to embrace change
and reinvent itself and reputation and there are many creative individuals who will grasp this opportunity and restore faith in the consumer through change and ethical practices.
Kevin Friend, partnerships director,
missoldmortgage
claims.co.uk
The implication of this question is that mis-selling is rife and that the problem is systemic but does the evidence actually support this assertion? The answer is no.
Of course mis-selling does sometimes occur – as it does in any market. But the Financial Ombudsman Service’s data on complaints show that mortgages accounted for only around 4.5% of complaints in the year 2009-2010, and the majority of the mortgage complaints reflected concerns about lender caution in lending, rather than the opposite. To the extent that borrowers were complaining about having a mortgage they did not believe was suitable, the complaints were largely from fixed-rate mortgage holders who felt that a variable- rate mortgage would suit them better. This is as likely to reflect wishful thinking in the light of the unexpectedly low variable rate environment as any genuinely inappropriate product holdings. However, the fact that mis-selling isn’t widespread doesn’t mean we should be complacent about it. So what should the industry be doing to address the issue? The relationships between lenders and intermediaries are crucial so that there is no room for misunderstandings (as well as less risk of fraudulent activities on the part of unscrupulous individuals that could lead to mis-selling). The joint CML / AMI / IMLA “Working Together” guide is a useful tool for reducing the risks and optimising good practice. And so is record-keeping. It would be unfortunate if allegations of mis-selling were upheld simply for want of adequate record- keeping about why the consumer ended up with the mortgage that they did.
One potential risk is that regulators may apply a retrospective view to past business in the light of current market conditions – the goal posts do need to stay fixed, and not move. If this happens the adverse credit lending of the pre-crunch era risks being the part of the market most vulnerable to accusations of mis-selling. If that occurs it is important that each case is considered on its own facts rather than any broad-brush assumption of malpractice being applied in the light of changed market conditions.
Sue Anderson, head of member and external relations, Council of Mortgage Lenders
Our experts have had their say, now it’s your turn to have yours. Visit
www.mortgageintroducer.com and vote for the expert you think makes most 28 Mortgage introducer APRIL 2011
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