Next steps with mortgage broker compensation claim.

anticlaus105

Sorry, this is a bit of a long one.

Our mortgage broker made an error which resulted in us losing a mortgage deal (I’ve posted about it previously here: Previous post). They have admitted the mistake, and we’ve been going back and forth over their compensation offer. Because rates increased sharply at the time, our financial loss is around £3,000. So far, they have offered approximately £1,800 and, after correcting a miscalculation, £2,000. Both figures include a £200 payment for distress and inconvenience, which they chose to add without us requesting it.

Their position is that they will only compensate us for the increase in monthly payments. I’ve explained that the higher interest rate adds more interest to the balance each month than the extra we pay, meaning the remaining balance at the end of the product term will be higher as a direct result of their error.

Their explanation is:

“Firstly, while I appreciate your concerns around the inclusion of capital erosion or our lack thereof, I must explain that when calculating the total cost of a mortgage, we do so based on the rules set out by our regulator, the Financial Conduct Authority (FCA). They calculate the total cost of a mortgage product based on the aggregated monthly payments under each contract over the relevant period and also including any relevant fees.

As we have used the recognised formula to calculate the total cost difference between the two products as set out by our regulator, and in line with the way in which our advice is provided when considering the total cost of products, we are unable to reconsider the amount involved based on the calculation you have suggested.”

In other words, they are saying the FCA requires them to compensate only the difference in monthly payments, even though our actual loss is significantly higher.

I rejected their £2,000 offer because I want to be put back into the position I would have been in had they not made the error, not left roughly £1,000 worse off.

After rejecting the offer, they went quiet. Three weeks later I chased them, and they then forwarded an email (just the body, not the header showing when it was sent) which neither my wife nor I ever received. It simply repeated that they are sticking to the £2,000 offer because “The calculations provided are correct as per the expectations of our regulator, the Financial Conduct Authority and as such we are unable to change them.”

My options now seem to be: escalate to the Financial Ombudsman Service, use Money Claim Online, or instruct solicitors.

I’ve read that you can go to the FOS first and still pursue court action afterwards if you’re not satisfied, but that doing so can weaken a later court case, so some people suggest going straight to court instead.

I’d appreciate any thoughts or guidance on what to do next. Does the FCA genuinely expect compensation to be based on a calculation that ignores part of the loss, or are the broker trying their luck?

Ayr_Rage

If they have followed the FCA guidelines for the situation then they aren't going to change their stance.

Time to get some proper legal advice not just forum opinions, but is that going to be worth it for the sake of £1200?

silvercar

Ask them for a final decision/ letter of deadlock as you intend going to the ombudsman. I can't see you have anything to lose by following this route.

MattMattMattUK

What was/is the exact amount on the mortgage, what was the exact term for the deal/fix, what was the rate you lost and actually got and the same for the monthly repayments?

anticlaus105

Thanks everyone for your comments. I guess there’s no harm in sharing the figures.

In February we agreed a mortgage deal due to start on 1 April.

Balance on 1 April: £93,051.10

Deal agreed: 29‑month fix at 4.19% with monthly repayments of £691.10.

Instead, we spent one month on the SVR at 6.54% with a payment of £808.28, followed by 29 months from 1 May at 5.44% with monthly repayments of £753.46.

Based on these numbers, I’d be interested to hear what people think a reasonable compensation amount should be.

Ignoring the SVR month, the monthly repayments are £62.36 higher, but the interest added to the balance each month is significantly more, starting at around £98 per month and gradually reducing to around £91 over the term. They just want to pay the difference in monthly payments ignoring the extra interest being charged in the background.

MattMattMattUK

https://forums.moneysavingexpert.com/discussion/comment/82033888#Comment_82033888

So that gives some useful data and makes things a lot more interesting. So for ease I will ignore the one month at SVR and just base it on 29 months and I have also simplified the interest charged as mortgage interest is calculated daily, but I have only calculated it monthly it gives us the following positions.

4.19% deal
Total paid:	£20,041.90
Interest charged:	£8,886.38
Outstanding balance at end of fix:	£81,895.58

5.44% Deal
Total paid:	£21,850.34
Interest charged:	£11,597.09
Outstanding balance at end of fix:	£82,797.85

Difference
Total paid:	£1,808.44
Interest charged:	£2,710.71
Outstanding balance at end of fix:	£902.27

That means after 29 months you would be £710.71 worse off, excluding the SVT month, or if you account for the SVT month and use the £2,000 as an overpayment, you would actually be slightly better off due to the reduction in overall interest.

anticlaus105

My calculations show that even if we ignore the final month where we’re stuck on 5.44% (a month we should have been able to switch but now can’t) and assume we pay the £2,000 into the mortgage, we are still around £500 worse off. Paying £2,000 into the mortgage now does not reduce the interest by £700 over the term, it only saves roughly £250.

The £2,710.71 plus the SVR month is the minimum they should be covering, because that is our actual financial loss. The £200 for distress and inconvenience should be added on top; otherwise it isn’t a genuine D&I payment, it’s simply being used to plug a shortfall in compensation.

silvercar

I’d make a counter offer, based on your calculations. Set out clearly, like @MattMattMattUK has done.

Though I do think that the money should be to put you in the position you should have been, so future interest savings aren’t helpful. You want an outstanding mortgage amount the same as if you’d had the correct deal and a reimbursement of the extra interest you have I paid. Arguably the extra interest you have paid would have earned you interest had it been in your own savings account, rather than being paid out each month, but I guess there are only so many iterations you can do.