Brokers in the crosshairs for misselling interest-only mortgages
A legal tech firm is targeting advisers who are deemed to have missold interest-only mortgages between 2004 and 2008 – much to the bemusement and frustration of some brokers.
ME Group, which was set up in September 2016, is working with consumers and their solicitors to seek compensation from advisers by taking cases to the Financial Ombudsman Service and the Financial Services Compensation Scheme.
Rob Cooper, director of ME Group, said: “These products were designed for people to invest money they would have paid on capital repayments – to create a better return.
“They were never designed for somebody to purchase a house that they couldn’t actually afford.
“It was misselling if they could only afford monthly repayments on an interest-only mortgage.”
Cooper went on to say that even if customers were aware of the risks of taking out an interest-only mortgage, the loan being ‘affordable’ was the key requirement advisers should have taken into account.
However some brokers were highly critical of ME Group’s practices.
Rob Ashley-Roche, principal of Rest Assured Mortgages in Bournemouth, said: “It’s a complete load of cobblers. But regretfully it’s causing mayhem and a lot of trouble.
“Let’s hope I have got all my clients off interest-only by now.
“If they claim you are going to spend months with sleepless nights.
“You are going to remember the client insisting on going interest-only and it hurts.”
Ashley-Roche argued that even customers who were stretched affordability-wise are now better off due to taking out interest-only mortgages, as they now have equity to cash in on even if they struggle to remortgage and are forced to sell.
David Hollingworth, associate director of communications at London & Country, questioned why the finger is being pointed at brokers rather than the lenders, seeing as the latter are tasked with assessing affordability.
Meanwhile he poured cold water on the notion that a vast number of customers were advised to take out an interest-only mortgage without having a viable repayment strategy at the end.
He said: “When the Financial Conduct Authority reviewed interest-only it recognised that the vast majority of borrowers do understand what they’ve got.
“Understanding what they’ve got by definition means understanding that the loan will not be paid down during the term.
“Brokers would have discussed the repayment strategy.”
ME Group is commonly approached about mortgage brokers, but some cases are being brought against lenders’ in-house advisers.
Matthew Wyles, chief executive of lender Hampshire Trust Bank, was a director at Portman Building Society before the recession, but he reckoned it handled interest-only responsibly.
He said: “The communication programme with interest-only customers was very rigorous.
“An interest-only customer would need to show that they did not realise that the mortgage was interest-only [for a claim to be valid].
“[If that’s not enough] that is for the law to decide.”
He played down the likelihood of interest-only misselling becoming a scandal on the same level as Payment Protection Insurance, despite making the parallel.
When assessing claims the Financial Ombudsman Service analyses whether consumers had a viable repayment plan in place, including selling the property.
An Ombudsman spokesman said: “If we uphold the complaint in favour of the consumer then we would ask the business to put them back in the position they would have been in had they received the correct advice.”
ME Group is contacted by 7,500 customers a month, with the firm earning a fee when it refers them to a panel of five solicitor firms.