Over the last couple of months I have looked at the potential heads of claim in relation to mortgage misselling and now I am dealing with how a defendent should address such claims.
Last week I dealt with how to deal with interest-only mortgages, sub-prime mortgages, lending into retirement and inappropriate debt consolidation.
This week I am looking at capital raising, affordability and self-cert. Remember, while there appears to be standard heads of claim submitted on behalf of claimants each case will turn on the individual facts. One common feature which each claimant must prove is causation. A claimant must show that any breach of duty by the defendant caused the loss.
The claims in relation to capital raising are generally generic in nature.
The claimants in these cases state that the broker had a duty to advise that using equity in their home would reduce the overall value of their home.
Again, a defendant will contend that the risks are made clear from all standard form documentation. It is important to note that the burden of proof rests with the claimants in these cases, it is not for the defendant to prove a mis selling did not occur. It is for the claimant to prove a mis selling occurred.
This may be an insurmountable task particularly in relation to capital raising heads of claims due to the generic nature and it would be very difficult for a claimant to offer supporting evidence stating that they did not understand the risks of using equity in their homes.
Affordability, a most important factor when considering best advice
Affordability encompasses several factors. The claimant will argue that the duty rests with the broker to ensure that the mortgage is affordable.
However, the question of affordability does not relate solely to the Claimant’s ability to meet the monthly mortgage repayments.
Claimants argue that they were not able to afford the mortgage but were in such a dire position financially at the point of sale they had little or no option but to accept the mortgage. By way of example, a Claimant with existing mortgage arrears and a threat of repossession seeks a new mortgage.
Their demands and needs at that time is to ensure they do not lose their home. Again, the causation point is relevant; is the fact that the same Claimant is now in arrears with the broker arranged mortgage mis selling? The answer would be no, the broker did not cause the loss as the Claimant was going to lose their home regardless.
Self-cert mortgages with evidence of income available
The Claimants position is that they were advised to self-certify their income by the broker. However, claimants should be mindful of the documents they have signed before making allegations such as these.
The Financial Services Compensation Scheme takes the view that if the mortgage application form confirming self-cert then the action taken by the claimant cannot be attributed to negligence of the broker. Generally, there is a standard clause on mortgage applications which states that the client understands the obligation and have sufficient income to support the loan.
It is worrying that some claimants are now trying to say they were employed and should not have self certified. There is a risk that claimants may be deemed to have acted fraudulently.
It is apparent that there is a list of standard heads of claim for claimants in relation to mortgage misselling. The heads are almost always identical and fail to deal with the specific facts of the case. Brokers with rigorous compliance procedures should feel confident in their ability to defend these claims if they arise.
In the final article of this series we will set out what brokers could and should be doing if they receive a letter of claim and what help there is out there for the industry to resist and fight any claims