Mis-selling of mortgage?

gw23

Bear with me on this one folks.

A lady friend of ours has an interest only mortgage which she got through a broker about 13 years ago. At that time she was in the middle of a divorce from an abusive husband and not only was she trying to find somewhere to live but she had all the other aggro of a divorce, the children etc. to worry about. So I would say she was very fragile and vulnerable. She'd never had to do anything like this before and I think she was a bit overwhelmed by it all and certainly didn't really understand about mortgages.

The broker got her a mortgage with a secondary provider (the husband had a terrible credit record and of course she was linked to it). They told her she needed to take out insurance as well and when she told them she couldn't afford the mortgage and insurance payments they told her not to worry, she only needed the policy to actually get the mortgage approved and then it could be cancelled, which is what she did. No problems, mortgage paid every month. A few years later she needed some improvements made to the flat she bought - needed a new heating system, re-wire, stuff like that. She went back to the same broker to see if the mortgage could be increased. They told her she could switch provider for a better deal and got her another interest-only one with the Halifax. Nobody - neither the broker nor the Halifax asked for any instrument to back up the interest-only. In fact they couldn't have done as the mortgage was approved and processed in just a couple of weeks.

She's now receiving letters from the Halifax asking her how she's going to re-pay it. When she received the first one, she started researching and realises now the position she's in. She's not stupid, she just really didn't understand the whole mortgage thing and it was because she correctly identified her lack of knowledge that she went to a broker in the first place. She's paid her mortgage every month, and managed to keep her head above water, she's carved out a quiet, but safe, life for herself with a lot of struggling.

Surprise, surprise, the broker now has gone into administration. She has been keeping all this to herself but finally broke down in tears and told us the whole sorry story a few days ago.

I'm wondering if this could be one of the few mis-sold interest only mortgages that stands a chance of being successful and I would be interested to get other views.

Thanks for reading all of this - tried to cut it down as much as possible!

kingstreet

Was this mortgage arranged on or after 1 November 2004?

Assuming it was;-

Was this an advised sale?

Was the salesperson directly authorised, or an appointed representative?

Does she have the sales documentation related to the sale which explains why interest only was suitable and what repayment plan was intended?

If it was before 31 October 2004, it's before regulation of mortgages. However, many of us used factfinding and suitability letters to justify our advice at that time.

What documentation does she have?

gw23

The original one was before 2004 but the one with the Halifax was about 2005/6. The salesperson was directly authorised. Not sure what documentation she has, will need to check on that. Most of it I would imagine. Thanks kingstreet.

Bantex_2

Are you saying she did not know what interest only meant?
What would have been the alternative?

gw23

Yes that's what I'm saying Bantex. The alternative was to stay in the spare room of an aunt of hers or to find somewhere cheap to rent. It was when she told the broker that this is what she was going to do that he said it was ok, the insurance could be cancelled and then she'd be able to afford the mortgage.

ACG

How much was her income in 2005-6?
Did she have any debts at the time?
How much was the mortgage for?
How much were the monthly repayments?

Ignore the above. I have just seen your response above.

It appears the reason for interest only was that she could not afford repayment. So the option would presumably have been interest only or nothing?

Bantex_2

gw23 wrote: »

Yes that's what I'm saying Bantex. The alternative was to stay in the spare room of an aunt of hers or to find somewhere cheap to rent. It was when she told the broker that this is what she was going to do that he said it was ok, the insurance could be cancelled and then she'd be able to afford the mortgage.

So if the option was down to IO or aunts spare room, why was this missold?

gw23

I think her income was about £13000 if I've worked it out right. She had some CC debt. The mortgage was for £99000 and it looks as though the repayments were about £450 per month. This is only from what she's told us but she's bringing over all the paperwork later so we can try & help her out if we can. Thanks, I'm certainly no expert and at least you're all telling me what it is I need to find out!

gw23

She did buy a flat - that was all she could afford. She rejected renting because when she was told she only need to pay the mortgage and forget the insurance, it was cheaper than renting anything at least half decent. It would have meant a grotty bedsit and even so, the flat she bought needed updating. The ex was supposed to be giving her some help to update but he never came up with a penny. She has a learning disabled son, and although he lives independently but with support, she at least needed room for him to sleep somewhere if he ever got worse and needed to come home.

Bantex_2

Does seem that what she got was by far the best option.
What are you hoping to achieve with the mis selling accusation?

dunstonh

She did buy a flat - that was all she could afford.

Sounds like, from what you have said, that she could only afford it on interest only basis.

She rejected renting because when she was told she only need to pay the mortgage and forget the insurance, it was cheaper than renting anything at least half decent.

Who told her to forget the insurance?
What evidence exists of that conversation?

It would have meant a grotty bedsit and even so, the flat she bought needed updating. The ex was supposed to be giving her some help to update but he never came up with a penny.

So, what exactly is the problem? She got what she wanted and the alternatives had been discounted as unsuitable by her.

Surprise, surprise, the broker now has gone into administration.

Well, as it is before mortgage regulation and they dont exist, the conversation is a bit pointless. There is no-one to complain to.

As for Halifax, they have been sending out annual warnings with the mortgage statements for those on interest only that they need to have in place a repayment vehicle. This is done in part to reduce their liability from complaint and also remind those that were using interest only as a means of affordability years ago to get something sorted.

For over 5 years now, interest rates have been very low. What has she been doing with the extra money saved? Many people have used the saving to pay more into the mortgage or build up savings/investments to repay the mortgage later. What has she done with the money?