ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.
December 2007 / January 2008
These case studies illustrate some recent complaints brought to us involving mortgage intermediaries. By and large, such cases concern very similar issues to those we see in complaints about mortgage lenders, including advice, charges and administrative problems.
When something goes wrong with a mortgage arranged through an intermediary, consumers can sometimes be confused about whether responsibility for the problem lies with the lender or the broker. In such instances we can help consumers to identify where they should be directing their complaint.
After consulting a mortgage broker, Ms J took out a mortgage that offered a fixed interest rate for two years.
Soon after the fixed-rate period ended, she visited the broker again. She asked him to arrange a re-mortgage as she was having difficulties affording the new – variable rate – repayments.
On the broker’s recommendation, Ms J agreed to take out a mortgage offering a 2-year "tracker" deal. With mortgages of this type, the interest rate is usually directly linked to the Bank of England’s base interest rate and rises (or falls) right away – as soon as the Bank of England announces a change.
A couple of days later, Ms J contacted the broker to say she had changed her mind and would prefer the certainty of a mortgage with a fixed rate of interest. The broker agreed to arrange this for her. However, as she later discovered, he never got round to doing so.
When Ms J rang him a few weeks later to find out what was happening, the broker had to admit that he’d left it too late to act on her request. Her application for the "tracker" mortgage had been accepted by the lender and the new mortgage arrangement had already been set up.
Within a relatively short period after Ms J had changed to the new mortgage, the Bank of England increased interest rates several times – so there had been immediate, corresponding, rises in Ms J’s repayments.
Ms J complained to the broker and asked him to pay her compensation. She said that because of his oversight she now had "the wrong type of mortgage" and was unable to afford the repayments.
She said the broker should also compensate her for the fact she had not been able to proceed with the purchase of a new flat. This was because of the very high cost of the mortgage repayments she was now having to make. When the broker refused her request, Ms J brought her complaint to us.
complaint upheld in part
We established that that the broker could easily have obtained a fixed-rate mortgage for Ms J, had he dealt promptly with her request.
Ms J told us that – at the time she applied for the re-mortgage – she had been planning to buy a new flat. We accepted that the increased cost of her mortgage meant she had lost the opportunity to buy the particular property she had wanted. However, we were not persuaded that the broker should be liable for that. The broker was only ever arranging a re-mortgage, and could not reasonably have realised that this might also affect a separate property purchase.
So we upheld the complaint in part. We said the broker should pay Ms J compensation to cover the difference between what she would have paid, if she’d had the mortgage she had asked for, and the total amount she was likely to have to pay over the same period with the "tracker" mortgage. We said the broker should also pay Ms J £250 for the distress and inconvenience his error had caused her.
After visiting a mortgage broker, Mr and Mrs C obtained a mortgage that offered a special rate of interest for the first two years. Towards the end of the two-year period, the broker made an appointment to see them again, to discuss their mortgage options.
He told the couple that when the two-year deal came to an end, the interest rate on their mortgage would increase and they would then have to pay the lender’s standard variable rate. So he said it would be better for them to take out a new mortgage with a different lender.
Acting on the broker’s recommendation, Mr and Mrs C re-mortgaged. However, some months later they discovered that if they had stayed with the original lender, the rate would not have increased in the way they had been led to believe.
The broker refused to accept responsibility for the costs the couple had incurred as a result of a re-mortgage that had not, as it turned out, been necessary. Mr and Mrs C then referred the complaint to us.
We found that the broker had misled Mr and Mrs C. Before recommending what he had told them was a "more suitable" deal, he should have carried out a proper review of the terms of their existing mortgage. He admitted that he had failed to do this. We said he should refund Mr and Mrs C’s re-mortgage costs and pay them £150 for the inconvenience he had caused them.
Mr and Mrs D were keen to pay off some large debts and thought the best way to raise the money they would need in order to do this was to re-mortgage. They therefore consulted a broker.
The couple gave the broker details of their existing mortgage but told him they were not sure whether their existing lender would make them pay an early repayment charge, if they changed to a different mortgage at this stage.
The broker undertook to check on this before proceeding with the re-mortgage. However, he then forgot to do so.
Mr and Mrs D were very annoyed to discover, in due course, that they had incurred an early repayment charge on their old mortgage. They said that if the broker had checked things out properly, as he had promised, then they would have postponed the re-mortgage until the end of the period when an early repayment charge was payable.
complaint upheld in part
We thought it likely that Mr and Mrs D would have wanted to avoid paying the early repayment charge if at all possible – and might therefore have wanted to postpone the re-mortgage. But we also noted that the money they raised by re-mortgaging had enabled them to pay off a number of debts – thereby saving themselves a considerable amount of interest.
We said the broker should pay compensation to Mr and Mrs D.
We calculated the amount he should pay, taking into account what the couple had gained – as well as what they had lost – as a result of his failure to check the early repayment charge before he arranged a re-mortgage. We said the broker should also pay Mr and Mrs D an amount that reflected the inconvenience they had been caused.
Mr K wanted to raise funds by re-mortgaging his home and he asked a broker to arrange this for him.
After having Mr K’s house valued, the prospective lender concluded that the property was not worth as much as Mr K had thought. So although the lender made an offer – which Mr K accepted – it was for less money than Mr K needed.
Shortly after the re-mortgage was set up, Mr K applied to the same lender for more money. However, the lender said it would not consider any application for further funding for at least six months.
At the end of that period – still urgently needing more money than he had so far been able to obtain – Mr K decided to re-mortgage again. In doing so, he incurred a substantial early repayment charge on the first re-mortgage.
Mr K then complained to the broker, saying he wanted compensation for the cost of setting up the second re-mortgage and for the early repayment charge. When the broker refused to pay up, Mr K came to us.
complaint not upheld
Mr K told us the broker had encouraged him to accept the initial re-mortgage, even though the amount he was offered was much less than he had wanted. According to Mr K, the broker had assured him that as soon as the re-mortgage was set up, Mr K could immediately apply for more money and would have no difficulty in getting it.
The broker had kept good records of the mortgage advice he had given Mr K. When we examined these records we found nothing to suggest that Mr K had asked for – or received – any assurance about the possibility of obtaining further funds.
There were a number of inconsistencies in Mr K’s account of events and he was unable to substantiate his claims that the broker had misled him. There was no doubt that – by re-mortgaging a second time – Mr K had incurred considerable costs. However, we did not agree that the broker should reimburse him for these costs. We did not uphold the complaint.
Mr F contacted a broker for help in arranging a re-mortgage. He had decided this was the best way of raising the additional funds he badly needed.
When giving the broker his details, Mr F stressed that the construction of his house was relatively unusual. He was concerned that this might affect his ability to re-mortgage.
However, the broker did not appear to think there would be a problem and he duly submitted Mr F’s application. After contacting Mr F to ask a number of detailed questions about the construction of his house, the lender turned down his application.
Mr F was extremely annoyed and said the broker must have been aware, from the outset, that the lender would not lend on properties of non-standard construction. So Mr F complained that the broker should never have processed the application and charged an administration fee.
complaint not upheld
We were satisfied that the broker had placed the application appropriately. He had sent it to a lender that routinely accepted mortgage applications on many non-standard properties.
The questions the lender had asked Mr F covered specialised matters. These were not details that the broker could reasonably have been expected to ask his client about – or to reach a decision on – before processing the application.
We did not agree with Mr F that the broker should have realised that this particular application would be unsuccessful. We did not uphold the complaint.