Mis-selling of intrest only mortgages

deanoyvb

Good evening people,

Was looking for a little advise in regards to the possible mis-selling by a mortgage broker of a 100% intrest only mortgage. My partner signed up for a 100% intrest only mortgage with the Nothern Rock mortgage but to realise it was a intrest only mortgage some 5 years down the line. The reason I feel that may have a case to be answered is that surely mortgage company must take some precautions when selling an intrest only mortgage i.e the customer must take out some sort of endowment to ensure that when the mortgage intrest is finally paid off then the customer would be in a financial position to pay of the actual amount the mortgage was agreed for???

The mortgage broker who advised obviously has a case to answer but are nothern rock in the wrong aswell?

Any information that can be offered would be greatly appreciated.

Dean Lisa & Livia

bobajob_1966

I take it he never read the paperwork that would have clearly stated the mortgage was interest only, or the statements that would show the capital amount was not decreasing?

deanoyvb

My missus was reading her statements but it was only when i took an active intrest in what was happening with the mortgage that we realised the actual owed amount wasnt decreasing. From your experience is there anything else we can do on this matter???

Thanks in advance

bobajob_1966

No, there is not. Read the paperwork she got when she took out the mortgage - it will explain that you need to set up a repayment vehicle for the capital amount. I would also be amazed if the broker did not also advise her of this.

shortchanged_2

Unfortunately this was quite a common problem, particularly with young first time buyers who have no real clue about mortgages. This was a problem during the boom years in that banks were not checking if customers had a repayment vehicle in place, hence they were throwing these interest only mortgages at people because that's all they could afford because house prices were so high. There are people on here who will deny this ever took place.

Many people put a lot of faith in some of these brokers in the belief that they were acting in their best interests.

Unfortunately there is probably little come back because ultimately your partner should have read closely what she was getting into before she signed. I know that might sound callous but there is the saying that covers this which is 'buyer beware'.

beecher2

Surely it is up to the person borrowing the money to understand the contract they're signing? All you can do is change to repayment and overpay - the property's likely to be in negative equity at the moment.

If you don't have any savings to through at the mortgage then head over to Debt Free Wannabee, post a Statement of Affairs, and get advice on how to start dealing with the debt. This would be a far more productive use of time than attempting to find someone else to blame for the decision to take on a 100% interest only mortgage.

poppy10_2

deanoyvb wrote: »

The mortgage broker who advised obviously has a case to answer but are nothern rock in the wrong aswell?

Do you take an responsibility at all in this scenario, or is it everyone else that is to blame for the decisions that you made?

holly_hobby

A mortgage brokers primary function is to source a suitable mortgage lender & product, discuss the different mortgage repayment methods, and subsequently arrange accompanying mortgage protection or a suitable repayment vehicle - in accordance with the individuals requirements, risk profile and financial status/budget.

Considering the commission aspect of the arrangement of a repayment vehicle, the sale of one is not to be sneezed at .... it would therefore be v doubtful that he simply "forgot" to either try and sell one, or advise you to effect a repayment vehicle from your own sources. (more likely he was led to believe that you were arranging one from your own source yet subsequently failed to arrange such a vehicle)

From experience, and the content of the post, I do feel that not all material facts may have been disclosed.

The reality is you have an interest only mortgage (generally much cheaper than capital and interest repayment - which is why I assume this repayment method was initially selected in conjunction with a 100% product ), but no repayment vehicle in place (meaning no premium being paid - another foolish cost saving exercise sought my those on a tight mortgage budget).

So you need to make immediate decisions as to how you are to remedy this issue, either set up an investment vehicle to hopefully repay at time of redemption, or switch wholly or partly to capital and interest.

Without commenting at this stage (until more facts are disclosed) re the validity of any complaint - it appears that you seek to claim that the adviser failed to sell/arrange a suitable repayment vehicle, nor sought to advise you that a repayment vehicle was required in support of your selected interest only arrangement.

If you do wish to make a complaint, it must in the first instance be directed to the broker who arranged the morgage, to give them the opportunity to address your concerns, you should also advise what remedy you require to resolve your complaint.

What remedy would you require if your complaint was upheld ?

(i.e are you asserting that you would never have taken an interest only mortgage, and that you instead would have effected a capital and interest mortgage.
Or that the situation you find yourself in of no repayment vehicle for 100% mge - is as a sole and direct result of the advisers negligence in advising how an IO mge worked, or the requirement of a repayment vehicle ?

Although its clear what the official rememdy would be, do YOU know/understnad what your complaint is, and the remedy YOU would cite ?

Or does this have a sole adjenda, regardless of merit, of a compensation seeking exercise ?

Holly

_Andy_

This forum is a total joke. Full of people whinging on about being mis-sold this/that and taking no ownership for their lives. Pathetic.

GMS

_Andy_ wrote: »

This forum is a total joke. Full of people whinging on about being mis-sold this/that and taking no ownership for their lives. Pathetic.

Unfortunately for as long as claims companies are allowed to make untrue claims with no cost to them this will become a bigger and bigger problem.

About time it was left to the losing party to fund the cost of these complaints. Why should a broker be liable for the cost of an investigation by the Ombudsman when they are proven to have done nothing wrong?

We live in a compensation culture whereby nobody is to blame for their own actions.

Mortgage wise it is becoming a nightmare. If I am asked to do an interest only mortgage I issue Key Facts for I/O and Repayment and get clients to sign both. Suitability letters are watertight. Still wouldn't be enough to stop a free claim for a parasite claim company though.

dunstonh

My partner signed up for a 100% intrest only mortgage with the Nothern Rock mortgage but to realise it was a intrest only mortgage some 5 years down the line.

OK. Lets look at the levels of disclosure he has missed.

1 - All the discussions that took place. Discussions are hard to prove anything either way was said but as the mortgage adviser has nothing to gain from doing repayment or interest only it is fair to assume that it was discussed.
2 - The key features illustration giving the repayments and risk warnings - this is a key document issued that covers the terms and risk warnings.
3 - The solicitor he employed to give him legal advice. Did he employ one or bypass that and just go with conveyancing (as many do)? If the latter, that means he bypassed the explanation of the terms. If he did use one then the solicitor would have pointed it out.
4 - The contract signed states it is interest only.
5 - The mortgage advice report would have stated it was interest only and had risk warnings
6 - Every statement issued by the lender over those 5 years would have said interest only.

So, your partner has missed a heck of a lot of paperwork. Are you really trying to convince us that it is likely he didnt know?

The reason I feel that may have a case to be answered is that surely mortgage company must take some precautions when selling an intrest only mortgage i.e the customer must take out some sort of endowment to ensure that when the mortgage intrest is finally paid off then the customer would be in a financial position to pay of the actual amount the mortgage was agreed for???

During the credit boom years that requirement went. The last endowment provider ceased to offer endowments in 2003. So, they couldnt offer what didnt exist. However, they issued plenty of documents with risk warnings.

Also, a mortgage adviser is not allowed to put in place a repayment vehicle. That would be outside of their authorisations. Only tied agents or IFAs can recommend suitable investment vehicles. The mortgage adviser only has to be say that one is needed and issue the documentation with the risk warnings.

Any information that can be offered would be greatly appreciated.

Realistically, there is little or nothing lost here. The first 5 years see very little repaid off a repayment mortgage and your partner has been paying much lower monthly payments.

If you want to be put in the position he would have been had he taken out a repayment mortgage then make a lump sum payment off the mortgage from the money your partner has saved each month by making lower payments.