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Claims firms set their sights on interest-only

Claims firms are believed to be targeting interest-only borrowers, as data from the Financial Ombudsman Service reveals mortgage complaints rose by 38% in the second half of 2011.

There were 4,194 mortgage complaints in the period compared with just 2,989 in the first half of the year.

But only 28% of all complaints were upheld in favour of the customer compared with 38% in the first half of 2011.

A spokesman for FOS says it expects the increase in mortgage complaints to continue because when the economic situation worsens people look at their financial situation more closely.

He says: “Many borrowers think lenders didn’t do enough to help them. Often lenders have taken reasonable steps to prevent complaints cases, which doesn’t mean borrowers are wrong to complain but it does explain the low rate of those upheld.”

Richard Farr, director at Telos Solutions, says the lack of repayment vehicles on many interest-only deals could cause problems.

The Financial Services Authority estimates that in the next 10 years around 1.5 million interest-only mortgages worth around £120bn will be due for repayment without adequate repayment vehicles in place.

Farr says: “There will definitely be more interest-only mortgage complaints as more people won¹t be able to repay the loan at the term-end.

“The responsible thing would be for consumer groups and regulators to launch a campaign for borrowers to check their repayment vehicles. If they act now they could do something about it, but not if there’s just a year left to the end of their term.”

In its annual report the Financial Services Compensation Scheme estimates it will deal with 357 mortgage cases this year.

There are 21 claims management companies authorised by the Ministry of Justice with the word mortgage in their brand name.

One authorised firm, Missold Interest Only, is handling 130 mortgage complaints with all but two of them interest-only deals.

Tim Griffiths, claims manager at Missold Interest Only, says most mortgage complaints are for interest-only deals sold by brokers.

He says: “There is a problem brewing with mortgages but it is being swept under the carpet because of the payment protection insurance scandal. FOS and the Financial Services Compensation Scheme are trying to keep the mortgage mess under control as they don’t want the floodgates to open.”

He adds that FOS seems to have come up with its own way of dealing with claims rather than considering them against what the FSA rules were at the time, which explains the low uphold rate.

In January FOS revealed that from 2013 it is looking to increase from three to 25 the number of free cases firms are allowed before having to pay the £500 case fee.

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  • Shaks 7th March 2012 at 4:09 pm

    More food for parasites.
    Claims co’s are a cancer and a cancer needs to be cut out. The vast majority of clients who choose to go down the Int only route and then submit a complaint are just trying it on. They have no morals and are part of the something for nothing society. Not even a single client of mine would even consider talking to these parasites because they know that I have advised them comprehensively, they know exactly what they are getting if tey decline a repaymenty mortgage. Action should be taken against these bogus parasite claims co’s. Send them to Guantanamo for terror crimes against the state and the people

  • Grey Haired Underwriter 7th March 2012 at 2:56 pm

    I think one salient feature has been missed here. Everyone thinks that it is the FSA or FOS that will decide if there is mis-selling but all too often it is the Courts that will mke this decision. Issues such as Ettridge, O’Brien, Bolands and so on are legal precedents and the Courts are deciding the situation. There was a recent case Involving KB where the Court decided the lender acted irresponsibly. The worry is that if the copurt found that the there was mis-selling or irresponsible lending they will have the power to set aside the mortgage but more importantly they will set a legal precedent that could be far more onerous than anything that the FSA could do

  • bobby 6th March 2012 at 2:36 pm

    BW

    Diddly Squat and they will be getting the square of nothing from me. If it did come to us being held responsible I would make myself bankrupt and leave the profession as they will not be getting a penny from me whilst I live and breath.

  • BW 6th March 2012 at 2:06 pm

    Can someone answer my genuine question. In the case of mis-selling, such as PPI, compensation is sought on the basis that the client has been deprived of the money and therefore requests it back plus interest. With Interest Only the client(s) have ‘enjoyed’ an additional sum of money per month and as such haven’t actually lost any money. On the few claim firm letters that I have seen they request a reduction in the Mortgage balance to what it would have been on a repayment basis, which I believe is crazy as it puts a client into an even better position than if the broker had no got involved, rather than the same position. So what can they actually request back? The broker fee (if any)? Thoughts appreciated.

  • Tom Cleary 6th March 2012 at 12:17 pm

    Unfortunately, we have an entire generation weaned on reality televison shows and aussie soaps. It is quite possible that a static mortgage balance would not be sufficient for some to realise they have an interest only mortgage. I have personally met clients that had an endowment mortgage but cancelled the endowment shortly after completion as they didn’t realise what what it was for!? But that doesn’t mean their were mis-sold. It is sad but true I am afraid…

  • bobby 6th March 2012 at 11:37 am

    This is ridiculous and systematic with everything that is wrong with the UK now. No client who has an interest only mortgage is unaware the balance will not reduce over the term and will magically disappear at the end of the term. Any claims would be laughed out of court, if they ever got to court. ” Tell me, Mr client ?, what part of the fact the mortgage statement every year showed the balance was not reducing did you not understand ? “. I will take any and all claims companies on and will wipe the floor with them. I suggest other brokers grow a pair and stand up to this ridiculous situation. Every single client who I have arranged an interest only mortgage for knows full well the fact the capital does not reduce and they need a plan to repay it. Every other broker will be the same. I can’t speak for all the non advised sales through Banks ” advisors “, the FSA have allowed over the last 8 years though as to whether their clients were told ?!

  • Stuart Duncan 6th March 2012 at 10:41 am

    Sorry, but Tim Griffiths is talking nonsense and simply trying to justify his ridiculous and perverse approach to making a living from non-claims.

    Almost every mortgage has the facility to overpay and it should only be those who were misled into believing that the mortgage would pay itself off that have cause to complain.

    As FOS rightly says, a static mortgage balance is reasonable cause for anyone with a brain to spot an issue on their mortgage statement. I have no doubt that most CMC-originated complaints will claim everything under the sun without even asking the most straightforward of questions.

    Companies like this should actually investigate files properly before making wild, unfounded complaints and hoping that a few stick.

  • Anon 6th March 2012 at 9:57 am

    3:35pm sadly I think you are right! There will always be someone willing to try it on, and stuff the consequences for the poor adviser if they can make a buck for themselves well we are just collateral damage.

    Hopefully the regulator will take a view that if the reasons for being interest only are recorded on file with the client’s reasoning, and communicated to the client with the warnings that repayment would be better, your home will be repossessed if you cannot repay your mortgage at the end of ther term, etc, then we have satisfied our obligations. Hopefully!!!!

    Thank goodness I have always sold BTL with the same processes as regulated contracts as many use ‘disposal of the property’ as the repayment method, which is far more accetable if it is not your main home and there is sufficient time left on the BTL term (eg: 10 years) after they think they will sell it. Becuase their lack of regulation in this particular area, will leave a massive gaping hole for the wolves to attack.

  • Peter Turner 5th March 2012 at 7:50 pm

    Quote from FOS. “I believe that it is reasonable that the problem ought to have been identified vie the annual mortgage statements provided by the mortgage lender far earlier than [when the complanit was made]. These would have shown a constant balance, not a decreasing one, and should have prompted investigation. It therefore seems that you have complained outside the six and three year time periods, therefore I cannot consider your complaint further”.

    This is from a real case. The firm relied on the Mortgage Code in its defence. Nowadays MCOB7.5 would probably be used.

  • Sandra McWhirter 5th March 2012 at 7:29 pm

    And then we wonder why all the lenders are withdrawing/reducing exposure to IO

  • Tom Cleary 5th March 2012 at 4:29 pm

    As a society, are we completely removing all personal responsibilty from the individuals? The claim culture has become the blame culture. People have to take some kind of responsibilty for their own actions. They cannot expect to be absolved and think that someone else will always foot the bill for their mistakes…

  • Dazed & Confused 5th March 2012 at 3:35 pm

    I get this feeling that even if you have done everything correctly, there will still be someone out there who will try and stick the knife in…or am I just getting paranoid??

  • Don't delude yourselves 5th March 2012 at 3:31 pm

    I have been watching PPI miss selling for years and it does not matter what you have on your file the consensus is people should not have been sold PPI in the first place.

    My genuine concern is this becomes the same, pushed by claims management companies, it becomes irrelevant what you said or have recorded, you just should not have sold interest only and therefore you lose.

    The fact is, this is not a situation where banks with deep pockets can cover these losses, most brokers will fold after the first claim, we will be talking £1,000s of pounds and yes there will be PI cover for some of it but the excesses will cripple most small firms. This is the death nail for an industry unless someone comes out and stops it, mark my words!

  • Don't delude yourselves 5th March 2012 at 3:31 pm

    I have been watching PPI miss selling for years and it does not matter what you have on your file the consensus is people should not have been sold PPI in the first place.

    My genuine concern is this becomes the same, pushed by claims management companies, it becomes irrelevant what you said or have recorded, you just should not have sold interest only and therefore you lose.

    The fact is, this is not a situation where banks with deep pockets can cover these losses, most brokers will fold after the first claim, we will be talking £1,000s of pounds and yes there will be PI cover for some of it but the excesses will cripple most small firms. This is the death nail for an industry unless someone comes out and stops it, mark my words!

  • Barrie 5th March 2012 at 10:36 am

    Claims management workers will come back as hook worms in another life.

  • J C 5th March 2012 at 10:31 am

    “We’re all doomed” @10.19 am

    I agree full heartedly but all our files had same advice etc for ASU, still didn’t stop the sharks tho, and every case they force thru to the ombudsman

  • We're all doomed!!!! 5th March 2012 at 10:19 am

    To be fair, anon 10.02 am, I do not believe that this will be a bigger complaint than PPI. Any advsier worth their salt would have indicated that there would need to be some way of paying off the mortgage, either by switching to a repayment at some point in the future, or some other mechanism.

    As long as the broker’s file covers off the interest only piece, and the broker did what he suggested – e.g. a reveiw after 2 years, then there is nothing to worry about.

    If this didn’t happen, then a complaint would be justified.

  • J C 5th March 2012 at 10:13 am

    Parasites, Scum, Leeches. Why don’t these people go get a life, get a real job and leave people alone. I currently receive approx 8 automated calls per day re Missold PPI. How many am I now gonna get about my mortgage. People on Interest only Mortgages done so of their own free will – mainly affordability – and know exactly what they have to do. Now these degenerates will have the public thinking they can get their “Broker” to repay their mortgage. What sad times we live in.

  • Mary Lockyer 5th March 2012 at 10:02 am

    This will be a far bigger complaint than PPI, as numerous borrowers were “helped” onto the mortgage ladder by taking out interest only mortgages with no repayment vehicle, and now will find themselves with no lender willing to refinance them as criteria has changed, and unable to move as they have no equity to cover the costs of moving let alone a deposit. However, lenders also bear responsibility, as they allowed such mortgages to take place, and their lack of foresight is lamentable, the saddest thing is those who were first time buyers are the worst hit,as a group they often lacked the knowledge and experience to be fully aware of the risk they were taking.