Mortgage Advisers Face Mis-selling Scandal.

by Mark Johnston

Mortgage Advisers Face Mis-selling Scandal.

Just when the financial industry appears to have righted itself following the payment protection insurance (PPI) scandal, it appears that it may have another mis-selling scandal on its hands.

Some claims management firms are currently claiming that tens of thousands of people may be victims of sub-prime and interest only mortgage mis-selling.

The claims management firm, Money Boomerang, is to launch a campaign to target mortgage mis-selling, in particular through intermediaries.

The firm will only accept mortgage claims were the applicant has been sold a mortgage by either a broker or an independent financial adviser.

Ian Barlow, Money Boomerang director and head of mortgages, says “interest is building up and we would expect to be drawing 200 new enquiries per month to start with”.

Some insiders have also predicted that a ‘torrent’ of such claims is on its way.

The Council of Mortgage Lenders (CML)has however stated that “with around 11 million mortgages currently in existence, problems will occasionally occur, but we have not seen any evidence of widespread mis-selling in the mortgage market”.

It is believed that mortgage brokers have for years sold high interest and high fee sub-prime and self certified mortgages to consumers who were actually eligible for much better products. It is also believed that many interest only mortgages were sold without the consumer being made aware that they only pay off the interest but not the capital.

A Citizens Advice report on the sub-prime lending market found that some of their clients had often found themselves in “appropriate and unaffordable” mortgages.

Research carried out by top market research agency GFK revealed that around 13 per cent of the consumers they surveyed who had a interest only mortgage claimed that they did not fully understand the terms of repayment on their deals.

However, many mortgage experts have suggested that it remains unclear how a borrower with an interest only mortgage would ever come to think they were paying anything other than only the interest, the clue is in the name surely!

But while the option for borrowers, especially those with interest only mortgages, to claim compensation for potentially being mis-sold their mortgages may be very attractive, Simon Helliwell, director of Commercial Remedies Group, a claims processing firm, states “it is extremely hard to prove mortgage mis-selling”.

Other experts feel that mortgage mis-selling campaigns could also raise many borrowers expectations unrealistically and end up costing them money they can ill afford to spend.

Eddie Goldsmith, partner at Goldsmith Williams law firm, adding “you will have to have a pretty black and white case to prove mortgage mis-selling”. He continued: “i fear these campaigns will result in a spate of unfounded claims for mortgage mis-selling which risks the reputation of the claims industry as a whole”.

Finally, Pat Bunton, chairman of the Association of Mortgage Intermediaries, said “while we would never decry a consumers right to make a complaint about a valid mis-selling issue, that is completely different to a claims management firm trawling and making a complaint where there is no issue”.

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