Bad financial advice?

Jonny2105

Hi,
In 2006 my patner and I were 19 and 20 and looking for financial advice on how we could possibly buy a house. We found a financial advisor and he told us that there was a way that we could get a house without any savings or deposit through a Northern rock mortgage.
As first time buyers we took his experienced advice and subsequently we bought a house for £113,000. Taking out a mortgage for £108,000 and an "unsecured loan" for around £11,000 to pay a loan off and for the deposit. He also advised us to go straight into an interest only mortgage as it was more affordable, all this without advising us to set up an endowment policy or have any life insurance policy his reasoning being we were too young to die! Thankfully he was right on that occasion!
6 years on and my now wife and I have made little affect on our mortgage, even though we are now on a repayment mortgage. Our mortgage balance now stands at £116,000 total. Considerably depressing as we bought the house for £3000 less than what we owe.
I have recently found out that the financial advisor (who gave us all the experienced advise) is no longer permitted to work in the financial sector due to mal-practice.
My question is, have I got any scope for compensation on the obvious poor advice that I recieved when I was so young and inexperienced? and if so, How do i go about it?
Thank you in advance for your posts.:)

roonaldo

I'm not really sure what the bad financial advice is? You mean mortgage advice? As there is a difference.

Endowments disappeared years ago so you wouldn't have been sold one in 2006 anyway! Mortgage advisers also not advise on investment products too. I really cant imagine a mortgage adviser not trying to sell you insurance with a mortgage, also they have no obligation to sell you anything. Anyway, you can buy life insurance freely on the internet.

In 2006 as mortgages were regulated by the FSA, it would be on your mortgage application how you intended to repay the mortgage, you would not have got the mortgage without this being answered, my bet says 'Sale of property' was ticked on the form.

You took a 100% mortgage at the height of the market and property prices have slumped. What do you want compensation for?

You say you were young and inexperienced, perhaps you shouldn't have been going on the property ladder then.

Annisele

Sorry - you wanted to borrow the money, the adviser arranged for you to borrow the money, end of. I don't think it is obvious that the advice was poor; it sounds as though you got the advice you wanted.

In hindsight, borrowing more than the house was worth was not sensible. However, like you, the adviser didn't have a crystal ball. If property prices had risen, would you still be complaining? If not, then your complaint is really about the performance of the housing market, which isn't within the adviser's control.

I don't think he should have told you not to take life cover. However, since you're still with us, that hasn't caused either of you a loss - and so there's no loss to compensate. If you still don't have life cover, go arrange some - and see an adviser about your other protection needs, as you almost certainly have more needs than just life cover.

dunstonh

As first time buyers we took his experienced advice and subsequently we bought a house for £113,000.

Dont mix up financial advice with mortgage advice. Mortgage advisers have remit to recommending a mortgage to fit your needs. So, you went to a mortgage adviser who told you that a lender is available to suit your requirements.

He also advised us to go straight into an interest only mortgage as it was more affordable, all this without advising us to set up an endowment policy or have any life insurance policy his reasoning being we were too young to die! Thankfully he was right on that occasion!

That is bad advice but mortgage advisers are not allowed to set up investment class products. The last mainstream endowment provider withdrew their product in 2003. Plus, it seems strange a mortgage adviser wouldnt recommend life assurance as they earn a commission on it plus it is common sense to have it.

6 years on and my now wife and I have made little affect on our mortgage, even though we are now on a repayment mortgage. Our mortgage balance now stands at £116,000 total. Considerably depressing as we bought the house for £3000 less than what we owe.

On the upside, mortgage repayments on a capital and repayment mortgage only reduce the balance by a small amount in the early years. So, you havent really lost out much plus you had the benefit of lower monthly payments early on which you no doubt put to use within your spending budget.

My question is, have I got any scope for compensation on the obvious poor advice that I recieved when I was so young and inexperienced? and if so, How do i go about it?

There has been a bit of this in the press recently and the FOS have come out and said it is unlikely there will be much success in complaints and there certainly wouldnt be the sort of compensation that some claims companies suggest.

Your problem on any complaint is that the documentation will have the required risk warnings prescribed by the FSA. You approached the mortgage adviser asking for a mortgage. You got a mortgage that fitted your then current needs. So, the product fitted the need. It was not sub-prime (which is where most of the complaints that are likely to succeed are).

You are only 6 years in and only a tiny bit in negative equity. That isnt something to be worried about. That is quite normal. On a long term mortgage you expect to have a period of negative equity and multiple recessions. You should have seen what it was like in the 90s.

Whilst the advice on life assurance was bad, you are not dead so not worse off and havent paid the premiums. So, are actually better off due to bad advice. Put it in place now. With the mortgage, you got what you asked. Nothing more, nothing less.

magpiecottage

As others have said, there seems to be no misselling here - certainly not based on the rules as they were at the time.

The mortgage offer would have confirmed you needed a repayment vehicle and you would have received annual statements making this clear until such time as you switched to repayment.

Yes a life policy would have been wise - so if you do not have one go and see an Independent Financial Adviser who will be able to find the best value for you from any provider.

However, assuming you remain in good health, you will not have had the saving of six years' premiums and the cost of a policy over the balance of your mortgage term is likely to be less each month than if you had taken a policy out at the beginning - so no loss there.