One of first interest-only mis-selling cases finds in favour of broker

One of the first trials related to alleged interest-only mortgage mis-selling has been dismissed with the judge finding in favour of the mortgage broker.

The case, brought by Pure Legal, was dismissed on the basis that it was out of time, with the claimants having all requisite knowledge of the material facts of the damage from the outset of taking out the mortgage.

The claim related to advice given in March 2006 on a mortgage completed in June of that year. At the time of the advice, the couple who took out the mortgage were living in rented accommodation and had several unsecured debts.

The borrowers indicated that they wanted an interest-only mortgage for the first three years to allow them to pay down those debts before converting to a repayment mortgage.

The broker provided the borrowers with standard documentation, including a Key Facts Illustration, a Mortgage Suitability Report, and an application form.

The borrowers signed the application and Mortgage Suitability Report, both of which reflected their needs and circumstances. They then accepted a mortgage offer from their lender and entered into the interest-only mortgage.

After several years had passed, the borrowers had taken no steps to convert the mortgage into a repayment mortgage and were regularly in arrears on their repayments, resulting in possession proceedings being issued against them.

They eventually sold the property in 2018, redeeming the mortgage in full, and moved into rented property.

The case saw the claimant claim that it was negligent of the broker to recommend an interest-only mortgage without there being a repayment vehicle or viable repayment strategy in place, and that switching to a repayment mortgage and overpaying towards the capital were not viable repayment strategies.

Damages of £41,138.85 were sought, comprising the difference in interest between an interest-only mortgage and a capital repayment mortgage and the amount of capital that would have been paid off under a repayment mortgage.

The judge dismissed the claim on the basis that it was statute barred by virtue of the Limitation Act 1980. The judge also found that in view of the borrower’s objectives the broker acted reasonably in recommending the interest-only mortgage.

Over the past 18 months brokers have been inundated with litigation related to mis-selling. The verdict should see off many claims that fall within the framework set out in the case.

Gemma Harle, managing director of Quilter Financial Planning, said: “The judgement handed down yesterday in the Pure Legal interest-only mortgage case spells very positive news for the mortgage advice industry.

“Not only does this represent a win for the mortgage adviser who was defendant, but the judgement also sets a precedent for future cases. The case essentially revolves around the claimants putting forward that their mortgage adviser was negligent to recommend an interest-only mortgage without there being a repayment vehicle or viable repayment strategy in place.

“The judgement, along with a number of other points, shows that the claimants were well aware of this when they entered into the agreement.

“Previous similar judgements, such as the Ross v Attanta case, set a precedent that the claim value could not include the amount of capital that would have been paid under a repayment mortgage and therefore meant future claims were significantly lower anyway.

“This further judgement provides additional clarity in respect to how these types of cases play out in court and therefore this news should come as a relief to the industry.

“While this is undoubtedly a good result, it is still important to be wary of these types of claims being brought. Claimant companies and solicitors face fewer and fewer options for how to proceed and it’s not clear what their next step could be. However, the judgement provides significant firepower for any future cases.”

Sign up to our daily email