The heat is on mortgage mis-selling

It was an accident waiting to happen so it\'s no surprise that the Financial Ombudsman\'s Service has at last run up the danger flag with re-gard to mortgage mis-selling.

Speaking at a recent Council of Mortgage Lenders complaints seminar, Tony Boorman, decisions director and principal ombudsman at the FOS, addressed the issue of mortgage complaints, which have risen by 50% in the past 12 months.

While confirming that the FOS will consider borrower complaints in a balanced manner, he also said that cases where mis-selling is apparent will result in consumers being compensated to pre-mortgage levels. That could be a pile of dosh.

And although it takes two to tango – or even three when brokers are involved – Boorman’s words are harbingers of doom for a lending industry still reeling from the impact of the US sub-prime crisis.

While acknowledging that these issues are rarely cut and dried, Boorman confirms that any compensation award-ed will reflect the contributions of all parties involved to the problem.

Given the levels of compensation awarded for pension and endowment mis-selling, lenders and brokers should prepare themselves for what could be the hardest blow yet.

And surely we’re only a spit away from the leeches of the industry – the ambulance chasers of the compensation claims world – waking up to the fact that another potential pay day is on the horizon.

Mortgage mis-selling is easier to prove than endowment mis-selling. After all, if for decades prudence determined that 2.5 x joint income was a sustainable lending formula, how justifiable does moving the goalposts to 6 x income seem? Does it not appear reckless?

And in the cold light of a retrospective and analytical dawn, what ice will affordability calculations cut? This isn’t just a can of worms, it’s a whole wormery. Although nobody can sensibly defend the old income multiple regime when it comes to determining borrowing potential, its common sense replacement – affordability calculations – has been widely abused.

A generation of brokers has grown up in a ‘make it fit’ culture. What was once a sensible income and expenditure calculation designed to highlight the amount of disposable income applicants had to support loans has often been massaged to achieve the desired results.

Will happy clients who were helped to buy their homes still be as grateful to their benefactors as they hand the keys back? Not a chance. At that point, Dr Jekyll will turn into Mr Hyde and lenders and brokers should reposition their shovels next to their fans.