Homeowners are considering taking legal action against mortgage brokers who they claim mis-sold them two-year fixed loans when rates were at rock bottom, rather than longer-term deals that would protect them against future rises.
The mini-Budget last year saw mortgage rates soar from lows of 0.99 per cent for a five-year fix in 2021 to nearly 7 per cent (6.65 per cent) in 2022 – the highest rates seen in this century. Homeowners who have had to remortgage since the end of 2021 have been left paying thousands pounds more a year on repayments.
Some of these people believe that they were missold their home loans.
Jencap Partners, a consultancy operating in complaint management, told i it has seen an increase of 15 to 20 per cent in potential mis-selling claims over the past month alone. These firms have been in touch with Jencap to see if clients may have a legitimate claim.
Tim Jenkins of Jencap said: “There will inevitably be valid claims but we’re not sure how sizeable that number is yet. Some brokers will have fallen short of requirements. At some point soon, we may see a more concerted campaign from the large claims companies targeting brokers.”
The claims are thought to centre around advice to fix for just two years in 2021, when interest rates were at an all-time low. Some homeowners are said to be angry they were told that, if rates did increase, it would be at a slow rate. This turned out not to be the case.
Other homeowners have claimed their broker said the bigger concern for homeowners fixing for five years could be early repayment penalties should their circumstances changed. They argue that rate rises turned out to be far the bigger concern.
Brokers told i they are worried. “Am I nervous about these conversations? Absolutely,” Nicholas Mendes of broker John Charcol, said.
“There will be brokers that come under criticism and some individuals will have received bad advice but one bad apple doesn’t reflect the market.”
Brokers usually train for between two to three years and are regulated by the Financial Conduct Authority. This obliges them to act with care, skill and diligence, and in accordance with the best interests of their customers. It added mortgage advisers must have appropriate qualifications, and firms must ensure that they are appropriately supervised at all times.
Brokers argue they had no way of knowing interest rates, and as a result mortgage rates, would rise as high as they did.
Mendes added: “No one could have foreseen where rates are going to go and the fact they went from an all time low to an all-time high.”
He added that in 2021, two-year fixed rate mortgages were the cheapest on the market, which is likely why many brokers will have recommended this.
An increase in complaints will be a “real threat to the industry” and especially smaller brokers, Jenkins said, thanks to the time and cost it takes to investigate such claims, whether they turn out to be valid or not.
It is especially worrying for smaller brokers who may find they have lost business, due to issues in the property market recently. However, it is thought more claims are set to follow.
David Hollingworth, of brokers L&C, added: “Interest rates have now risen and borrowers are wishing that they had locked in for longer. This really underlines the fact that no one knows what may happen in the future and a whole generation of borrowers had become used to very low interest rates.
“There’s never any guarantees around what could happen and the volatility since the end of 2021 has shown that things can change very rapidly, despite the fact that no one saw it coming.”
What if I want to make a claim?
If you are unhappy with the advice you have received you have to give the company a chance to review your complaint, then if the answer isn’t to your satisfaction, you can go to the Financial Ombudsman who will review the evidence and decide whether it warrants action.
When determining if someone was mis-sold the Ombudsman will look carefully at the firm’s files which will include things like records of discussions with the customer, the advice letter, communications with the lender, as well as emails and call recordings.
You will be asked for their version of events.
It will then come down to the evidence. If there’s agreement about what the consumer’s needs and circumstances were at the time and the dispute is just about whether the product recommended was suitable it will focus on that. But if there’s disagreement about what the consumer’s stated needs were at the time, it will first of all resolve that dispute on the balance of probabilities and then think about what would have been suitable based on what it has found.
If it concludes that unsuitable advice had been given, and there was an alternative product that ought to have been recommended and for which the customer was eligible, it could require the firm to put the customer back in the position they would have been in had suitable advice been given.
This might include, for example, paying the difference between the product the customer ought to have taken and what they’ve actually ended up paying for the duration of the product they ought to have had. Where the advice also caused distress and inconvenience, it would also expect a firm to compensate its customer for that too.
