Mis Sold Mortgages
| Is your mortgage agreement valid?
For most people, taking
out a mortgage is likely to be the biggest financial
commitment they will make.
It’s not surprising
then that giving mortgage advice became regulated by
the Financial Services Authority (FSA) in October
2004. Since then mortgage advisers have had to
ensure that the advice they provide is suitable.
This includes whether you, as the customer can
afford the mortgage, whether it meets your needs and
whether it is the most suitable from all of the
mortgages that the adviser can access.
a lot of evidence to show that many people have
not received the most suitable
advice. People can receive incorrect or misleading
mortgage advice in a number of ways and if you have
been mis-sold a mortgage or mortgage-related product
then we may be able to help.
What are the
ways in which my mortgage may have been mis-sold?
didn’t take account of changes in interest rates and
how these might affect you.
For example, if you
took out a fixed rate mortgage, your payments will
have been set at a fixed amount for a period of
time. Once the fixed rate ended, your payments will
have changed to the standard rate that was offered
by the lender. In many cases, this will have meant
that your payments would have increased
substantially. If the adviser didn’t assess the
likely increases you could face and whether you
would be able to afford them, your mortgage may have
was required to take account of any known changes in
For example, let’s
assume that you took out a mortgage at age 45 for 25
years. If you are going to retire at age 65 this
means that you will still have another 5 years left
on your mortgage. The adviser should have
established how you will be able to continue to
afford the mortgage after you retire.
undertook a remortgage to repay your existing debts,
then your adviser should have considered the costs
that would be incurred as a result of lengthening
the period of your debt and the implications of
making a loan that was unsecured become secured
against your home.
For example, you have a
car loan that has 3 years left to run and you
remortgaged to repay this loan. Whilst remortgaging
probably reduced the amount you had to pay each
month, it also means that you are really repaying
the loan over the term of your mortgage, which could
be 20 or 25 years. You’re also going to be paying
interest over this longer period. All in all you’ll
usually be paying more in the long run.
sold a “sub-prime” mortgage where you could have
obtained a “high street” mortgage.
A sub-prime mortgage
may be offered where your credit rating is poor or
shows that you have experienced difficulties with
payments in the past. However, it may also be
offered if your income is below the level that a
mainstream lender will accept or you require a
particularly high loan against the value of your
property. Sub-prime mortgages usually have higher
interest rates. Therefore, if you did not fit into
one of the above categories then you may have been
mis-sold if the adviser arranged a sub-prime
mortgage for you.
arranged a self-certification mortgage for you even
though you were employed and had proof of your
mortgage is one where you generally do not have to
provide evidence of your income to the lender. As a
result, the lender takes more risk in lending to you
and therefore charges a higher rate of interest. If
you didn’t need a self-certification mortgage but
were advised to take one, you may have been mis-sold.
Another concern around
self-certification mortgages is that some advisers
have encouraged borrowers to inflate their income to
enable them to get a mortgage in cases where there
income would otherwise be too low. This is called
should also have assessed whether you preferred an
“interest-only” mortgage or a “capital and interest”
A “capital and
interest” mortgage is ideal for borrowers that don’t
want to run the risk of having money left to pay on
their mortgage at the end of the term. This is
because you repay interest on the mortgage as well
as an element of capital back to the lender with
every payment. The lender works out what you need to
repay each month to do this and so assuming that you
don’t miss any payments, the mortgage will be paid
In contrast to this, an
“interest-only” mortgage is exactly
what it says. You only pay interest on the
outstanding mortgage to the lender. This means that
you have to find another way of repaying the actual
debt, by using what’s called an “investment
vehicle”. Common products used are
endowments, an ISA, a unit trust, or even a pension.
Whilst an interest-only mortgage usually means that
you pay lower amounts each month it does carry the
risk that the investment vehicle you use is not
guaranteed to repay the mortgage at the end of the
term. Therefore, your adviser should have discussed
with you whether you were prepared to take this
I took my
mortgage out directly with a lender – do the same
Yes, if your lender
gave you advice about the suitability of a mortgage,
then it was also required to comply with the same
principles and rules.