The Ombudsman orders Advance Mortgage Funding to pay out more than £60,000

Michael Lloyd

January 5, 2018

The Financial Ombudsman Service (FOS) has ordered the adviser firm Advance Mortgage Funding to pay more than £60,000 after an adviser gave unsuitable mortgage advice.

The client, referred to as Mrs M, was 66-years old and retired with a pension income of £17,000. She lived in a house which was worth around £198,000 and didn’t have a mortgage.

In 2009, the mortgage adviser recommended that Mrs M take out an interest-only mortgage of £58,500 for seven years. She used the loan to buy a property overseas with investment companyHarlequin.

Harlequin had agreed to fund the building, which was in construction and to be complete in 2011 and arranged for finance to be raised to enable Mrs M to purchase the remaining share.

She had planned to make repayments through the rent from the property.

However the property was never built, Mrs M lost her money and had no way of making the repayments.

Advance Mortgage said it acted in good faith, not aware of what MRs M intended to do with the money, did not know of the Harlequin deal.

It said it could only rely on what Mrs M told her, could not have predicted what would happen and were not required to give advice on the suitability of the investment.

However, the FOS agreed with Mrs M.

It found although the advisor may have acted in good faith and did not have to give advice about the investment, the mortgage recommended was unsuitable for her needs.

Sue Wrigley from the Ombudsman wrote: “Looking at Mrs M’s circumstances I think this was far too risky for her. If any of these risks materialised Mrs M would very probably be unable to pay her UK mortgage at the end of the term.

“I think the adviser should have highlighted the potential repayment risks and discussed with Mrs M whether she had other means of repaying the mortgage debt if needed.

“So I don’t think the mortgage recommended to Mrs M was suitable. It wasn’t appropriate for her needs and circumstances and there was a high risk she wouldn’t be able to repay it.

“That’s why I’m upholding the complaint. Not because the investment failed, or to compensate Mrs M for investment loss, but because I’m not persuaded she was fully advised of the risks in repaying the mortgage and I think the mortgage advice was unsuitable for her circumstances.”

Wrigley thought Mrs M could not afford a repayment mortgage or savings plan to repay a mortgage, so it seemed that with suitable advice she would not have taken out a mortgage

She wrote: “That leads me to conclude that the fair way to put this right is to put Mrs M back in the position she would now be in if she’d never taken out the mortgage.”

Wrigley ordered Advance Mortgage to pay £58,500 to represent the additional borrowing taken on an interest only basis and £750 for the upset caused.

This was on top of the mortgage arrangement fee of £995 which was added to the loan, plus the mortgage interest applied to that sum.

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