A mortgage is usually the largest single debt that many of us incur. With such a major financial undertaking, you might face serious consequences if anything goes wrong with your mortgage, or if the mortgage you have been sold is not suitable for your circumstances.
There are laws and regulations which govern how mortgages can be sold to consumers. If these rules were broken when you took out your mortgage, then it may have been mis-sold, and you could be entitled to compensation to repair any financial harm which you suffer as a result.
However, mortgages can be confusing, and working out whether you have been the victim of mis-selling can be difficult. This guide aims to help you through, giving you as much information as you want about mortgage mis-selling and outlining what you can do if you believe you have been mis-sold your mortgage.
If you would prefer to ‘cut to the chase’ get in contact with the Irish Claims Board directly or speak to one of our specialists experts about your case.
What is mortgage mis-selling?
Mortgage mis-selling can cover many different circumstances. Usually, it centres on questions of whether the mortgage lender or broker took the time to advise you properly, fully assess your situation, or whether they acted openly and fairly in their dealings with you.
Some common examples of mortgage mis-selling include:
- Failing to advise you fully on all the mortgage terms you were agreeing to.
- Neglecting to assess your ability to afford the mortgage repayments.
- Failing to detail the fees they would be charging you or explaining how these would be paid.
- Charging you unfair fees.
The legal basis for mortgage mis-selling claims
You may not need to read this section, especially if you are intending to instruct a firm of experts to handle your mis-sold mortgage claim. However, it can be useful to know the source of the rules and regulations covering the sale of mortgages.
The sale of mortgages (and many other financial services) is regulated by the either the Central Bank in Ireland or the Financial Conduct Authority in the UK (the Regulator). The Regulator is an independent body tasked with:
- Protecting consumers when buying financial products.
- Regulating against bad practices.
- Promoting an effective, trustworthy financial services market.
The Regulator derives its powers from statute
The Regulator’s rules cover mortgage lenders directly (e.g. banks and building societies), but also intermediaries, such as mortgage brokers and financial advisors. The rules impose many obligations on lenders and brokers, generally aiming to promote fair, honest and professional conduct, which has the best interests of the customer at heart.
The Regulator’s guidance contains the rules which regulated organisations must follow.
A claim for mortgage mis-selling will frequently rely upon showing that a lender or broker has breached one or more of the rules on mortgages. This means that it is possible for someone who has suffered a loss as a result of the Regulator’s rules to bring a claim for compensation to make good those losses.
It is important to note, however, that even if it can be proved that your mortgage lender or broker contravened one of the Regulator’s rules, this cannot be used to declare the whole transaction void or unenforceable. In other words, you cannot use it as justification to say that your entire mortgage agreement is ineffective and then refuse to pay your mortgage!
Specific examples of mortgage mis-selling
This part of the guide looks at some specific situations in which mortgage mis-selling can occur, including:
- Interest-only mortgages
- Endowment policies linked to interest-only mortgages
- ‘Fast track’ or ‘self-certification’ mortgages
- Mortgages extending beyond your retirement age
- Remortgaging for debt consolidation purposes
- Hidden or excessive fees and broker commission
- Failure to advise of penalties or fees when switching
With most interest-only mortgages, the borrower’s regular mortgage payments are such that they only cover the interest which accrues on the lump-sum capital borrowed under mortgage. The arrangement usually allows for much lower mortgage payments, but means that the capital amount does not get paid off during the course of the mortgage.
When the mortgage’s term ends, the capital amount becomes due – meaning the borrower must be able to make a large lump-sum payment to discharge to mortgage at that time. This can cause difficulties, especially if the borrower is not adequately prepared for it.
If you took out an interest-only mortgage, it does not necessarily mean it was mis-sold to you. However, given the potential dangers for unprepared borrowers, there are specific Regulator rules for how lenders and brokers must approach selling interest-only mortgages.
For example, when entering into the mortgage contract with you, the rules require that lenders or brokers obtain evidence that you have a credible repayment strategy in place – for paying both the interest and the capital amount of the mortgage. This could be a regular savings plan being kept for that purpose, or a plan to sell assets like land or property etc.
If none of this was discussed with you, your mortgage may have been mis-sold to you. Also, if the mortgage lender/broker accepted an unsuitable plan as being sufficient, this can be used as evidence of mis-selling. Some examples of unsuitable plans include:
- Expecting the property you are mortgaging to increase in value sufficiently, so that you can sell it, and repay the capital with some left over.
- Relying upon risky investments to perform sufficiently well to allow you to pay off the capital sum.
- Expecting ‘windfalls’ of cash which are uncertain by nature – such as inheritances or personal injury compensation for example.
Mis-selling of endowment policies
An endowment policy is a savings plan involving regular payments which you make in the anticipation of receiving a lump sum payment at the end of a fixed term. Whilst the intention is that this pay-out will be more than the total value you have put it, it is not necessarily the case.
One common practice amongst lenders and brokers has been to link endowment policies with interest-only mortgages. The idea being that you would make regular interest-only mortgage payments alongside payments into the endowment policy and then, when the endowment policy ends, you will have a sum of money to pay off the capital amount of the mortgage.
If you have been sold an endowment policy with an interest-only mortgage, there are a number of ways in which it could have been mis-sold to you. For example, the advisor may not have explained about:
- The risks involved with the endowment policy – for example, where the policy is linked to stock market performance there are always risks that its value will not increase as intended. This could result in the final payout being insufficient to cover repayment of the mortgage capital.
- Situations where the end of the endowment policy’s term falls after you are due to retire. The lender or broker should discuss how you will continue paying the premiums for the endowment policy after you have stopped working.
- Situations in which the endowment policy is due to end after the end of mortgage period. If this were to happen, the payout from the endowment policy would not be available to cover repayment of mortgage.
- Where you have been advised to surrender an existing endowment policy to take out a different one, what their reasons recommending this were.
‘Fast-track’ or ‘self-certification’ mortgages
These are mortgages in which you did not have to prove your income or outgoings in order to take out them. Essentially, you, the borrower, ‘self-certified’ that you were able to afford taking on the mortgage and could keep up with the repayments.
Given that the lender or broker has responsibilities to check the borrower can afford the mortgage under the Regulator’s rules, being sold one of these mortgages can form a strong basis for a mis-sold mortgage claim.
Fast-track and self-certification mortgages often attracted high commissions for brokers and so many may have been sold by unscrupulous brokers to maximise profit, without the products necessarily representing the best choice for the customer. Doing this would represent a failure to carry out their obligations under the Regulator’s guidelines.
Mortgages beyond your retirement age
If you have a mortgage which is due to end after your retirement date, your mortgage lender or broker should have specifically discussed this with you when you took out the mortgage.
This is part of their obligations to assess your ability to repay the mortgage. After retirement, you will no longer be receiving a wage, so the lender or broker must be assured that you would still be able to meet the required repayments through other means. If they did not consider and discuss how you would cover your mortgage payments after your retirement, it could constitute mis-selling of that mortgage.
Remortgaging to consolidate debt
You may have been advised by a lender or broker to consolidate smaller debts – such as credit cards and short-term loans – by remortgaging your house. The process usually involves paying off the smaller debts and effectively adding their value to your mortgage.
Whilst this can reduce your monthly outgoings in the short-term, it may also increase the overall amounts you have to pay. This is because, due to the larger capital amount of your mortgage, it will accrue higher amounts of interest than before, and over a much longer period than the short-term loans.
Depending on your circumstances, and the advice you received when you remortgaged, it is possible that your new consolidated mortgage might have been mis-sold to you – particularly if the potential consequences of consolidating in this way were not fully explored or explained.
Hidden or excessive fees and broker commission
If you paid excessively high fees for a mortgage, this could also be an indication of mis-selling, especially if you were not advised of alternatives that would be more cost-effective.
Lenders and brokers are also under obligations to inform you of any fees which are payable as a result of the mortgage, in advance of you agreeing to it. This includes any penalties which might be incurred by switching mortgage lenders.
One way in which mortgage fees could be unreasonably high (or hidden) is by adding fees onto the amount you are borrowing. Because this has the effect of increasing your debt, it means that you are paying interest on the fees which have been charged. Again, this could be mis-selling if you were not fully advised that the fees would be added to your debt and informed of the effect this would have.
Many mortgage brokers receive commission from lenders when signing customers up for mortgages. However, the fact that a commission has been paid to your mortgage broker in connection with your mortgage does not automatically mean that it was mis-sold to you. On the other hand, very high commissions may indicate that there is a strong incentive for a mortgage broker to recommend a specific mortgage product. In these situations, it is worth investigating further whether you have been fully advised and that the mortgage you were sold is appropriate for your circumstances.
For most recent mortgages, brokers have to inform their customers of the amount of commission they will receive, or if this is not yet known, undertake to disclose this when it has been finalised. If these obligations apply to your mortgage, but have not been complied with, this could indicate a mis-sold mortgage.
How do you know if your mortgage has been mis-sold?
The examples above give common situations in which mis-selling can occur, but how can you tell if your particular mortgage has been mis-sold?
Your first step should be to gather all of the information that you have relating to your mortgage. In mortgage mis-selling claims, much depends upon what your lender or broker told you (or did not tell you) before you agreed to your mortgage. As such, any communications which you received from them will often be crucial evidence.
Once you have gathered all of the evidence you can, it may be helpful to seek advice from a expert with specialist knowledge of mis-sold mortgage claims. At the Irish Claims Board, our expert experts are ready to help you with this stage if you wish; all you need to do is contact us.
Making a mis-sold mortgage claim
When you make a claim of any kind, it is for you, as the claimant to prove through evidence that your claim is legitimate and that you are entitled to compensation.
Even when you instruct a expert and they take over handling your case for you, it will still be for you and your legal representatives to prove the claim.
In a mis-sold mortgage claim, you will need to prove:
- That you were sold a mortgage by the broker/lender/advisor that you are claiming against.
- That they breached one or more of their obligations under the Regulator’s rules. Typically, this will be that they did not provide you with all the information they should have done, or did not advise you fully in relation to your mortgage, or failed to take appropriate account of your circumstances.
- That this breach, or breaches, of the rules caused you a loss.
If you wish to handle your mis-sold mortgage claim yourself, you can start it by writing a letter of complaint to the lender or broker whom you hold responsible. If they do not respond within a timescale of 8 weeks, you can contact the Financial Ombudsman and ask them to investigate the matter.
Why should I use a expert?
You are not required to instruct a expert to handle your mis-sold mortgage claim. However, you might prefer to have you claim managed by an experienced expert with knowledge of mis-sold mortgage claims, rather than researching the relevant information and conducting the case yourself.
As mentioned above, it is for you as the claimant to prove your claim, so the better your case is constructed and prepared, the greater its chances of success.
Engaging a expert and succeeding in your case does mean that fees will be payable. Usually these are paid in part by the party you are claiming from and also as a percentage of the compensation you are awarded. Of course, you will not have to pay any fees if you handle the case yourself and you are successful, but you will almost certainly stand a better chance of your case succeeding if it is professionally prepared and represented.
Some experts can take on your case on a ‘No Win, No Fee’ basis, meaning that you will not have to pay any fees if you are unsuccessful in your claim. No Win, No Fee is not available in Northern Ireland.
It can also be very helpful to have the support of a professional – someone who is not closely connected with the events of your case and who can assess and advise you on your claim in an objective way.
What can you do if the organisation who arranged your mortgage has gone out of business?
If your mortgage lender, advisor or broker is no longer in business, you may still be able to make a claim. Regulators operate Compensation Schemes which are funds which has been set up to help people who have been mis-sold financial products by firms which are no longer operating. However, in order to do so, the organisation must have been regulated by the Regulator, when it was still running.
How long do I have to make a claim for a mis-sold mortgage?
There is a legal time limit placed upon all potential claims for mis-sold mortgages. You must lodge your complaint with the Financial Ombudsman within 6 years of the date upon which the mortgage was taken out.
In certain circumstances this may be extended. For example, if you only become aware of the mis-selling at a later date, a time limit of 3 years will apply, running from the date upon which you became aware of (or reasonably should have become aware of) the mis-selling.
How much compensation will I get?
Compensation for any kind of claim is intended to place you in a similar financial situation to that which you would have been in had you not suffered the harm in question. In mis-sold mortgage claims it is no different, and so any compensation you recover will depend on the amount of financial loss you have suffered due to the mis-sold mortgage.
It is also important to bear in mind that compensation is also only payable once you have established that your mortgage was mis-sold to you. In other words, you must successfully prove you claim, and the damage which the mis-sold mortgage caused, to be compensated for it.