Mortgage broker messed up

tegmim

I went through a broker I had used before to try to fix my mortgage before predicted rate rises and release extra capital for the building work we are undertaking. They had been bought out by a larger broker since I last dealt with them, but seemed quite proactive and helpful. I contacted them in late November, provided all the documents they wanted by mid December, and felt like they had plenty of time to pick the best deal by April when our existing fixed rate with Scottish Widows ended. I was completely open and honest about the complexity of our finances from the start (I own a small tech business that employs both me and my husband, we are paid salary and I get dividends, plus he also does freelance work for his previous employer, we have income from property, and I also get book royalties). But on the positive side we have a credit score of 999 and sub 50% LTV.

The broker said that all of our income would be recognised by Scottish Widows, and gave us a mortgage illustration for the full amount we wanted to borrow, saying this had been agreed by Scottish Widows at an amazing interest rate of 1.54% (with offset). She also did us illustrations for the whole amount from Nationwide at 1.39% but they didn't offer an offset, and I was concerned their terms might exclude properties with more than 5 acres (we have a farm cottage with some surrounding meadows and woodland). We agreed she could go ahead and apply on our behalf for the SW product (SW don't deal direct with customers) but for some reason she didn't do that until after our fixed rate expired - despite my explicit request to fix the rate as early as possible. She then told us that we'd need to do it in two steps - first renew the existing borrowing on a 5 year fixed term rate, then apply for the additional borrowing. I specifically asked if there was any risk we'd get tied in to the existing borrowing and be declined for the additional borrowing, and she said that this would definitely not be an issue. She told us that the full amount had been agreed, and the two-step process was a formality, but that you had 28 days to pull out of the renewal without penalty if there was any issue with the additional advance.

However, this is exactly what happened. We went onto a five year fixed rate deal, and SW then refused to lend any additional money. It transpired that they didn't count any of our income except for salary that had been declared in tax returns, and they averaged this over the last 3 returns. That meant that none of our other sources of income were included, and worse still, our salaries reflected a period in which we had been investing heavily in R&D for the business. So our total income as a couple was calculated as being less than what I as a single individual will earn this year. They weren't interested in the value or current turnover of the business (which is rapidly scaling and has secured some large contracts with public sector organisations), or what income we have already banked this year.

So it was the wrong choice of lender, and to add insult to injury she'd waited until late May to contact them (despite having all the information in December) so we ended up with a significantly higher fix at 2.13%, and a £20k penalty to leave in the first 12 months of the fix. But the main issue is that we wanted to release more capital, and didn't get any.

Thankfully, the broker has accepted fault. They couldn't really do otherwise as they had all the emails where I gave my info in December, the illustrations for SW and Nationwise (and later illustrations with Virgin and Santander at 1.82% and 1.84% when she missed the best rate and SW went up to 1.74%) and recordings of the calls where I checked the scenario of renewing the existing borrowing and being declined the new wasn't a risk. They can give no excuse for the delay, and they can see that it made no sense to tie me in to the deal before securing the extra borrowing - though they are still trying to listen to all the calls between the broker and SW to see why she reached the belief that the whole amount was agreed and gave us that advice. The head of complaints has said they will be passing on the case to their insurer, who will have to reach a settlement with us to cover our losses. But we don't yet have anything in writing. And even if they agree to cover our losses, we don't know how long that will take, or if it will really be as simple as they make it sound. And somewhere along the line we have to work out where we are getting the additional borrowing. The broker say they can't find us any other source of lending, but can refer us on to a partner agency who do more complex mortgages, who may be able to help.

We seem to have two options:

1) borrow against our other property, with a much higher rate to reflect it being a single freehold house split into two flats

2) try to find a lender who will lend us a higher amount against our home, and then pay the penalty to exit the fixed rate with SW 

Both of these options seem really expensive compared to the rate we had expected (1.54% with offset). I had a quote for a mortgage on the second property at 4.99% but I spoke to a specialist broker yesterday who said the Clydesdale might lend at 3.49%. Even at the best of those rates, to borrow the extra against the other property at the higher rate will cost us £45-50k more over the five years. And that doesn't even account for the uplift in rates on the mortgage deal we have, which will cost us another £10k over the term. The penalty for leaving SW, plus difference in interest rate (as rates have gone up another 0.5% since we fixed, and are probably due to rise again imminently) plus an extra set of fees will probably also top £40k if we change lender. But that depends on finding a lender who will look more favourably at our multiple income streams and/or see the growing value of my business.

So, I'm hoping that you guys who know a lot about mortgages can help to guide me. Is there an option I am missing? Is there a lender or broker who is particularly good with complex sources of income that I should speak to? Does the value of my business have any relevance here? Will the broker's insurance actually cover our losses? And what is the likely timescale for that? My legal insurance now say they exclude financial services (although it doesn't mention that anywhere on the website, or in the information about the product that they sent me).

K_S

@tegmim I'm really sorry to hear about all the trouble you've had, almost all of it looks like it's down to them sitting on your case for months and mixing up a like-for-like PT (product transfer with existing lender for which the income doesn't come into the picture) with a capital-raise (where the income does come into the picture even with an existing lender) 

If you have made a formal complaint and the broker has admitted fault, then they should be clarifying what it is that they will be putting right and how an amount will be calculated, which is usually putting you in the position you would be if they had done their job properly. It's important to remember that this is unlikely to override eligibility issues. So if your circumstances were such that you would not have been able to get what you needed with another mainstream lender and would have been limited to a like-for-like PT with Scottish Widows anyway, then the 'loss' to you is likely to be limited to the delays on their part in reserving a product switch rate, which could have been done on 01 Feb for a Scottish Widows fix ending on 30 April.

With respect to who can help you get what you need and whether you can get what you need, all I can suggest is to speak to a couple of experienced brokers and see what they say.

ACG

You have a responsibility to limit your losses. So paying a £20k ERC is probably not going to fly with the insurer. 
What you might be able to do is to take out a secured loan for the additional borrowing.
Fees/costs will be around £2-3k the difference in monthly repayments between the original figures and the new figures can then be calculated and they will hopefully just give you the difference. 

tegmim

Thanks for the advice.

I'd really like the broker to clarify what they are offering by way of compensation. They've said their goal is to make me feel like the offer is fair, and to not need to use the ombudsman or a legal claim for redress, but I know their insurance will want to minimise costs.

K_S said:

It's important to remember that this is unlikely to override eligibility issues. So if your circumstances were such that you would not have been able to get what you needed with another mainstream lender and would have been limited to a like-for-like PT with Scottish Widows anyway, then the 'loss' to you is likely to be limited to the delays on their part in reserving a product switch rate, which could have been done on 01 Feb for a Scottish Widows fix ending on 30 April.

I think this is the tricky bit. I'd not have used the broker if the only offer on the table was to renew with SW (which I could have done myself on the website). It was only the additional advance that meant I required a broker, and it was their confidence that I'd easily secure the full amount that made me press ahead under that assumption. Had they said "we can't get you borrowing above renewing the existing amount" I'd have spoken to lenders and other brokers until I found an offer that released the extra capital - or arranged to borrow it in a different way. I wouldn't be left without the money having already committed to spend it!

ACG

My personal view is that to put this right (which is their only requirement) would be for them to price up you taking out a secured loan at whatever todays rate is. 

Add up what the repayments & fees of the SW and secured loan would be over the chosen period (ie 2 year/5 year etc) and then work out the difference between that and the nationwide product. 

If the total difference is say £5,000 over the initial period, that is what they should pay (in my opinion). Compensation and the like is discretionary and down to the broker. Obviously if you are not happy with the figure they propose you can try to negotiate, if you can not agree then you can go to the ombudsman. 

tegmim

ACG said:

My personal view is that to put this right (which is their only requirement) would be for them to price up you taking out a secured loan at whatever todays rate is. 

Add up what the repayments & fees of the SW and secured loan would be over the chosen period (ie 2 year/5 year etc) and then work out the difference between that and the nationwide product. 

If the total difference is say £5,000 over the initial period, that is what they should pay (in my opinion). Compensation and the like is discretionary and down to the broker. Obviously if you are not happy with the figure they propose you can try to negotiate, if you can not agree then you can go to the ombudsman. 

I did try to calculate that above, and the difference is about £40-60k, not £5k. Over a 5 year fix, a difference of 2% on hundreds of thousands of pounds really adds up.

ACG

Ah, fair enough.

The insurer will put it right, even if they do not, you still have the ombudsman to fall back on where you can complain about the broker. 

tegmim

Just to update on this: I hope that we have now secured the additional borrowing, just ahead of the rates being pulled. But even then, we will have to pay 5.04% with a hefty £8k of fees (plus valuation and legal costs) because it isn't secured on our primary residence.

I calculated the losses to us, and they amount to £81,350 over the 5 year fix (£16k on her delay on fixing the rate we have, and the remainder is the much higher charges and interest rates on the additional borrowing). So that is much worse than even my own worst case scenario (and if we hadn't acted on Monday, or if this mortgage doesn't go through, the costs could be £30k worse by next week).

The head of complaints is speaking to their insurer this afternoon, and I'm hoping will put something in writing after that, as I'm still reliant on her word that they accept fault and will be offering compensation - as they haven't said that in writing yet.

tegmim

We have reached a settlement. They have accepted fault in writing and offered £60k of compensation. I decided that was good enough not to wait 9 months for the case to be looked at by the ombudsman. Compound interest over the term will mean we are no worse off as a result of their incompetence over all.

I thought you guys might want to know, as it is another example of how fighting the system can get very good results.

ACG

I was about to say congratulations, but I am not sure that is the right phrase. 
Well done though. It is a decent outcome. As you say, paying £60k off your mortgage/loan will probably save you £20k over the term of the mortgage or not far off. 

Glad to hear they did not make you work too hard for it and did the right thing. 

dunstonh

Good grief, was this thread really back in September.  how time flies when you are not waiting for a complaint outcome!!!   
thanks for updating us and what a difference.