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| Claims management firms turn from PPI to mortgage mis-selling | Claims management firms turn from PPI to mortgage mis-selling |
| (1 day later) | |
| Claims management companies that have made billions of pounds from PPI are turning their attention to mortgages in what they say is the next big mis-selling scandal. | Claims management companies that have made billions of pounds from PPI are turning their attention to mortgages in what they say is the next big mis-selling scandal. |
| A number of claims management companies are soon to launch websites and TV advertising campaigns targeting borrowers who think they may have been mis-sold mortgages. Most will initially be aimed at customers with interest-only mortgages, even though lenders and the Financial Ombudsman Service (FOS), which rules on consumer claims against financial companies, say the claims are unlikely to succeed. | A number of claims management companies are soon to launch websites and TV advertising campaigns targeting borrowers who think they may have been mis-sold mortgages. Most will initially be aimed at customers with interest-only mortgages, even though lenders and the Financial Ombudsman Service (FOS), which rules on consumer claims against financial companies, say the claims are unlikely to succeed. |
| Interest-only loans are mortgages where the borrower agrees to pay off the interest each month but none of the capital. Borrowers are expected to ensure they have a repayment vehicle in place to pay off the loan once it expires, usually after 25 years. | Interest-only loans are mortgages where the borrower agrees to pay off the interest each month but none of the capital. Borrowers are expected to ensure they have a repayment vehicle in place to pay off the loan once it expires, usually after 25 years. |
| "A vast number of people who took out interest-only home loans were not subject to adequate checks on the repayment vehicle they have or should have in place," says Craig Lowther, managing director of Money Boomerang, a claims management company. "Many will now be facing massive debts come the end of their mortgage term. We believe many people were mis-sold mortgages and the total value of claims we could be dealing with will be close to that for PPI." | "A vast number of people who took out interest-only home loans were not subject to adequate checks on the repayment vehicle they have or should have in place," says Craig Lowther, managing director of Money Boomerang, a claims management company. "Many will now be facing massive debts come the end of their mortgage term. We believe many people were mis-sold mortgages and the total value of claims we could be dealing with will be close to that for PPI." |
| The mortgages have been embroiled in controversy since it became apparent that large numbers of borrowers have made inadequate or no provision to pay off the capital. Some have blamed banks and building societies for failing to make checks and there was speculation that the Financial Services Authority might ban the loans altogether. | The mortgages have been embroiled in controversy since it became apparent that large numbers of borrowers have made inadequate or no provision to pay off the capital. Some have blamed banks and building societies for failing to make checks and there was speculation that the Financial Services Authority might ban the loans altogether. |
| However, in its long awaited review of the mortgage market published last week the City watchdog stopped short of a ban and instead said that lenders will only be able to grant them if a borrower has a credible repayment plan in place. | However, in its long awaited review of the mortgage market published last week the City watchdog stopped short of a ban and instead said that lenders will only be able to grant them if a borrower has a credible repayment plan in place. |
| Nevertheless, some lenders such as Nationwide and Co-op have withdrawn from interest-only lending while others, such as Santander and Lloyds TSB, have tightened the criteria on which they offer interest-only mortgages. | Nevertheless, some lenders such as Nationwide and Co-op have withdrawn from interest-only lending while others, such as Santander and Lloyds TSB, have tightened the criteria on which they offer interest-only mortgages. |
| Although many claims companies are targeting their marketing around interest-only mortgages to try and cash in on the recent fears surrounding such loans, in reality most of the claims they intend to make will focus on other potential mis-selling (see box, right). | Although many claims companies are targeting their marketing around interest-only mortgages to try and cash in on the recent fears surrounding such loans, in reality most of the claims they intend to make will focus on other potential mis-selling (see box, right). |
| Tim Brookes, who runs missoldinterestonly.com says he has seen his website shoot up in Google's rankings recently as increasing numbers of people search for information on mis-sold loans. His company has not had any successful claims relating solely to the fact that a mortgage is interest-only, but he says he's had some successes with other mortgage claims. | Tim Brookes, who runs missoldinterestonly.com says he has seen his website shoot up in Google's rankings recently as increasing numbers of people search for information on mis-sold loans. His company has not had any successful claims relating solely to the fact that a mortgage is interest-only, but he says he's had some successes with other mortgage claims. |
| "Self-certification is one area where we have seen customers being badly advised. Lenders and brokers were lazy and told people to take out these loans when they could have got a better loan on the high street," he says. | "Self-certification is one area where we have seen customers being badly advised. Lenders and brokers were lazy and told people to take out these loans when they could have got a better loan on the high street," he says. |
| Self-certification loans were taken out by self-employed people because the loans enabled them to declare their income without showing substantial proof that they earned it. These loans have now been banned by the FSA. | Self-certification loans were taken out by self-employed people because the loans enabled them to declare their income without showing substantial proof that they earned it. These loans have now been banned by the FSA. |
| Claims management companies are already fighting among themselves for what they perceive to be future mis-selling business. One representative, who did not wish to be named, says his company will be launching a "major initiative" around mis-sold mortgages at the end of next month. He says the claims management sector is "currently a mess" and that there are lots of companies about to jump on the "mortgage mis-selling bandwagon" who have no idea what they are doing. | Claims management companies are already fighting among themselves for what they perceive to be future mis-selling business. One representative, who did not wish to be named, says his company will be launching a "major initiative" around mis-sold mortgages at the end of next month. He says the claims management sector is "currently a mess" and that there are lots of companies about to jump on the "mortgage mis-selling bandwagon" who have no idea what they are doing. |
| "There is a perception among some in the industry that everyone can claim and throw mud at the wall and something will stick – and that is wrong," he says. "Unless you can demonstrate that the individual you are representing has suffered a tangible loss there is no claim." | "There is a perception among some in the industry that everyone can claim and throw mud at the wall and something will stick – and that is wrong," he says. "Unless you can demonstrate that the individual you are representing has suffered a tangible loss there is no claim." |
| A spokesman for the FOS agrees: "It sounds like claims management companies are going for the scattergun approach. If they apply that blanket approach, it is not going to work." | A spokesman for the FOS agrees: "It sounds like claims management companies are going for the scattergun approach. If they apply that blanket approach, it is not going to work." |
| The claims companies The Observer has spoken to say they expect to bring claims against both brokers and lenders, though it seems likely most will be against brokers, many who have now been shut down by the FSA or ceased trading. Any claims rejected by lenders will end up with the FOS, say the claims management companies, while those against brokers who have gone out of business will be referred to the Financial Services Compensation Scheme. "Although we expect a lot of claims to be against brokers, lenders will be vulnerable where they had in-house advisers who were pushing interest-only loans where these were not suitable or where they had not made sufficient checks on the repayment vehicle," says Lowther. | The claims companies The Observer has spoken to say they expect to bring claims against both brokers and lenders, though it seems likely most will be against brokers, many who have now been shut down by the FSA or ceased trading. Any claims rejected by lenders will end up with the FOS, say the claims management companies, while those against brokers who have gone out of business will be referred to the Financial Services Compensation Scheme. "Although we expect a lot of claims to be against brokers, lenders will be vulnerable where they had in-house advisers who were pushing interest-only loans where these were not suitable or where they had not made sufficient checks on the repayment vehicle," says Lowther. |
| If a claim is successful, Lowther says he would expect to be able to claim back all the payments the borrower would have made towards his loan had that loan been taken on a repayment basis, plus an additional 8% interest. | If a claim is successful, Lowther says he would expect to be able to claim back all the payments the borrower would have made towards his loan had that loan been taken on a repayment basis, plus an additional 8% interest. |
| The FOS says this is unlikely. "It just doesn't follow that if you were successful you would get all your mortgage payments back," says a spokesman. "We would also look at the responsibility of the borrower to check the details of their own mortgage in each case and any redress would reflect that." | The FOS says this is unlikely. "It just doesn't follow that if you were successful you would get all your mortgage payments back," says a spokesman. "We would also look at the responsibility of the borrower to check the details of their own mortgage in each case and any redress would reflect that." |
| Claims management companies typically had steep charges. Money Boomerang will take 25% of any successful claim, while mis-soldinterestonly charges a non-refundable £395 plus VAT upfront and then takes a 25% cut. A spokeswoman for the Council of Mortgage Lenders says: "We strongly believe that the overwhelming majority of mortgages have been sold and administered in line with [FSA] standards. If a borrower believes they have a legitimate reason to think that the standards were not met, then we would urge them to follow up their concern with the broker or lender who sold them their mortgage. If they remain dissatisfied, the Financial Ombudsman Scheme can decide whether there is a case to answer." | Claims management companies typically had steep charges. Money Boomerang will take 25% of any successful claim, while mis-soldinterestonly charges a non-refundable £395 plus VAT upfront and then takes a 25% cut. A spokeswoman for the Council of Mortgage Lenders says: "We strongly believe that the overwhelming majority of mortgages have been sold and administered in line with [FSA] standards. If a borrower believes they have a legitimate reason to think that the standards were not met, then we would urge them to follow up their concern with the broker or lender who sold them their mortgage. If they remain dissatisfied, the Financial Ombudsman Scheme can decide whether there is a case to answer." |
| COULD IT BE YOU? | COULD IT BE YOU? |
| Five ways one claims management company say a mortgage could have been mis-sold: | Five ways one claims management company say a mortgage could have been mis-sold: |
| ■ Repayment to interest-only mortgages The main reason for changing is affordability. However the broker needs to ensure there is an investment vehicle in place which will pay off the mortgage at the end of the term. They should also explain the risks involved in an investment (it may not cover the mortgage) and what would happen if it didn't. | ■ Repayment to interest-only mortgages The main reason for changing is affordability. However the broker needs to ensure there is an investment vehicle in place which will pay off the mortgage at the end of the term. They should also explain the risks involved in an investment (it may not cover the mortgage) and what would happen if it didn't. |
| ■ Sub-prime mortgages A broker may place a borrower on a sub-prime mortgage (sometimes broker fees are higher) when they could easily get a mortgage more cheaply on the high street. | ■ Sub-prime mortgages A broker may place a borrower on a sub-prime mortgage (sometimes broker fees are higher) when they could easily get a mortgage more cheaply on the high street. |
| ■ Self-certification of income The only reasons for a self-certified income is that the borrower has been self-employed for fewer than 18 months or they need to complete quickly. If the borrower does not fit into these criteria why was the mortgage self-certified? | ■ Self-certification of income The only reasons for a self-certified income is that the borrower has been self-employed for fewer than 18 months or they need to complete quickly. If the borrower does not fit into these criteria why was the mortgage self-certified? |
| ■ Mortgage runs into retirement A broker must ensure that if the mortgage runs into retirement the borrower can still afford the mortgage payment from their pension. | ■ Mortgage runs into retirement A broker must ensure that if the mortgage runs into retirement the borrower can still afford the mortgage payment from their pension. |
| ■ Debt consolidation. To consolidate existing debts (such as credit cards and loans) into a mortgage many brokers would extend the term of the mortgage but not explain that it would cost more in the long run. In some cases the debt was consolidated into an interest only mortgage and therefore never paid off. | ■ Debt consolidation. To consolidate existing debts (such as credit cards and loans) into a mortgage many brokers would extend the term of the mortgage but not explain that it would cost more in the long run. In some cases the debt was consolidated into an interest only mortgage and therefore never paid off. |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| HSBC | HSBC |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian |