letter for mortgages sold under the MCOB should not automatically mean that clients have a case to complain.”


inTeresT-only speCTre Sub-prime isn’t the only spectre in the industry’s past. Interest-only mortgages have caused a lot of impassioned debate in recent times, particularly following the FSA’s mooted proposal in its Mortgage Market Review paper published last summer asking the industry its thoughts on banning interest-only. While nearly everyone clamoured against this and the FSA duly followed up the initial question with a statement saying it had no intention of banning the product, the debate itself has arguably prompted a change in lenders’ behaviour in this sector of the market.


The MMR is also likely to mean lenders will have to assess affordability on interest-only applications in the same way as they would a repayment mortgage, and that borrowers will need to show how they intend to repay the loan by means other than sale of the property. Indeed, many lenders have already put this into practice. It’s still a moot point but some argue that it highlights what went wrong with interest-only in the past. “I reckon in the 90s and 2000s tens of thousands of borrowers took interest-only deals without a repayment vehicle,” says Clifford. “I think everyone has it in them to get what they can and if consumers can blame the industry if they subsequently couldn’t afford to repay the loan, they will. “If brokers cannot evidence that they did explain to that customer how they would repay the mortgage then there could be problems.”


But Robert Sinclair says he is unconvinced that this would stand up. “I remain unimpressed by this argument,” he says. “Sale of property remains a plausible strategy amongst many others. A repayment vehicle is one option.” However Clifford thinks there could be an additional risk for brokers. “Even if brokers can say that the borrower taking interest-only was the only way he could afford the loan it’s no defence,” he claims. “If you look back at the endowment claims the Ombudsman disregarded


affordability arguments. It’s easy for consumers to prove they were risk averse and blindly followed the advice of their mortgage broker and I think they could very easily demonstrate the inappropriateness of interest-only for their risk profile. The Ombudsman is more interested in the appropriateness of risk than in affordability.”


Gemma Harle says it comes back to advice. “Providing the broker had conversations around how a client intended to repay the loan at maturity or into retirement and the response was credible then I would believe that the consumer would have to take responsibility. “If there was no discussion about


repayment of the loan then there could be a potential claim however we must balance this with the fact that a broker may not be regulated to advise or sell the appropriate product.


“The other thing is the obligation of the


broker only to recommend mortgages that are affordable, however some consumers may be encouraged to claim when their circumstances change (no pay rises, pay cuts, redundancy). The broker cannot be held responsible for this – they don’t have a crystal ball.”


loose lending


Responsibility for mis-selling of interest- only and sub-prime deals appear to fall in the broker’s lap for the most part but Sinclair confirms that lenders would be responsible for lending and product performance. That throws self-certification mortgages into the frame. If a borrower on a self-cert deal found himself repossessed or in arrears would they be able to claim mis-selling?


“I believe they would,” says Rob Killeen, a qualified lawyer and business manager at London-based broker Capital Fortune. “Any borrower in this situation should also obtain legal advice as there is strong argument that a lender should not be allowed to repossess if they allowed self-certification of income.


“Both parties to the contract have to act


reasonably and as a company, whilst we accept we remain in a minority, for a


lender to accept self-certified income is not reasonable.


“They have not only the consumer themselves to protect, but also their stakeholders, shareholders and the wider systemic economy. Self-certification fails these duties given the level of capital transferred on the basis of one person’s say so.”


The niTTy griTTy Both the FSA and the Ombudsman similarly say it’s impossible to be specific about how claims would work in practice. Every claim would have to be assessed on a case by case basis by the ombudsman if the claimant wasn’t satisfied after approaching their broker or lender.


“Mortgage complaints are eligible for


free consideration by the Financial Ombudsman Service, and there is therefore no need for anyone with a complaint to use a claims management company,” says Sue Anderson of the CML.


“The level of complaints about mortgages is very low compared with other financial services. Whether a mortgage is mainstream or not, the principle of examining all the circumstances surrounding the individual case will apply, so it is impossible to generalise on the likelihood or otherwise of a complaint about a particular issue being upheld. “Brokers are required under FSA rules (and indeed were required under the Mortgage Code) to maintain a record of the reason for recommending a particular product when a recommendation was provided, so this would be a factor that would be relevant to any individual complaint about whether or not a mortgage was sold appropriately. “But there will be many factors that would need to be taken into account in any complaint, and the circumstances of superficially similar cases may turn out to differ widely.”


In its latest annual review for 2010/11


FOS revealed that mortgage brokers made up only 16% of the mortgage complaints we received last year, with banks making up nearly seven in 10 of the


mortgage introducer OCTOBER 2011 35


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