Article Source Thisismoney.co.uk
Claims management firms are setting their targets on compensation arising from mis-sold mortgages, including interest-only loans, and have predicted that a ‘torrent’ of such claims is on its way.
Claims management companies (CMCs) are eying new sources of revenue after helping fuel an explosion in claims for mis-sold payment protection insurance (PPI), the cover sold alongside loans and credit card to cover repayments if the borrower loses their job.
Their focus is now turning to a mortgage industry which some believe is home to another huge mis-selling scandal.
Claims firm Money Boomerang believes that mortgage brokers have for years sold high-interest and high-fee sub-prime and self-cert mortgages to customers eligible for much better products.
The company also believes some were sold interest-only mortgages without being made aware they will pay off the interest but not the capital.
The problem of interest-only mortgages maturing without borrowers having funds in place to repay the full amount due has been brought into sharper focus because house prices have fallen in many parts of the country since the financial crisis hit. This means borrowers have less equity in their home if they need to sell at the end of their mortgage term and may find it difficult to get a replacement deal.
PPI CASH GOING UNCLAIMED
British consumers are missing out on £18.3billion of compensation as they are unsure if they have been mis-sold a PPI product.
Claims management company EMCAS claims around 11 million Britons are unsure if they can claim for financial mis-selling or not.
EMCAS says the average payout for mis-sold payment protection insurance is £2,650.
Spokesperson David Walter said: ‘Our primary concern remains that victims of financial mis-selling reclaim what is rightfully theirs. The voice of consumers needs to be heard above that of the banks.’
You can use This is Money’s guide which explains the step by step process to submit a PPI claim yourself,so you don’t have to pay claims management company fees.
The potential to claim compensation for being mis-sold their mortgage will be attractive to borrowers in this position, but it remains unclear how a borrower with an interest-only loan would come to think they were paying anything other than only the interest.
Craig Lowther, Money Boomerang’s managing director, said: ‘Just when the banking ship appeared to have righted itself following the PPI scandal, it has hit another iceberg.
‘And once again, only a fraction of the problem’s huge scale is visible above the surface. With the banks’ credibility holed below the waterline once more, what is starting with a trickle of claims could soon become a torrent.’
Money Boomerang, which like other claims management firms charges customers 25 per cent of their successful claim, has launched a new department to investigate mortgage mis-selling.
Other forms of mis-selling being considered include people with interest-free mortgages being encouraged to take loans out against their property; extending the loan term without a customer’s knowledge; and brokers not doing adequate checks to ensure a customer can afford the repayments should their mortgage run into retirement.
The Council for Mortgage Lenders has issued a robust response to claims that tens of thousands of people could be entitled to compensation, stating it had not seen any evidence of widespread mis-selling in the market, and that procedures are in place to handle the ‘occasional’ case where someone has been a victim.
A spokesman said: ‘The information provided to customers as part of the mortgage sales process is designed to minimise the risk of mis-selling, and protect consumers.
‘With around 11million mortgages in existence, problems will occasionally arise, but there is no evidence of widespread mis-selling – when people suffer difficulties, they are usually because of changes in their circumstances rather than problems with the original mortgage.
‘As with any financial product, if a consumer believes they have a legitimate complaint about their mortgage or how it was sold, the Financial Ombudsman Service offers a completely free and fair service that can provide redress if appropriate.’
Candidates for compensation?
Money Boomerang said it will focus primarily on mortgage brokers, with its head of mortgages division Ian Barlow telling This is Money that high street banks tend to have stricter procedures in place to prevent this kind of mis-selling, whereas some brokers may pick products that provide the highest commission.
Lenders offering loans or credit cards against properties are also on Money Boomerang’s radar.
People potentially mis-sold a sub-prime mortgage may have been pushed into a product by a broker, even though they could have qualified for a mainstream mortgage at a lower rate and with a lower fee.
Others may have been sold a ‘self-cert’ mortgage – which also comes with higher rates – even though they are intended for the self-employed who need to prove their own income.
Some brokers, Money Boomerang claims, do not take into account the financial cliff facing those who take on a mortgage that will run beyond their retirement, when their income is likely to drop significantly.
The sub-prime mortgage market has been in the spotlight before over dubious practices, with the Financial Services Authority finding in 2010 that some brokers were misleading potential customers with poor advertising materials.
Leading mortgage adviser Ray Boulger does not believe there has been much mis-selling by independent brokers in the sub-prime market at its height before the financial crisis.
He also said that specialist sub-prime brokers who potentially mis-sold products could potentially avoid compensation by claiming to have had no knowledge of the criteria lenders look for when approving mainstream mortgages.
He said: ‘A skilled independent broker was someone who knew which lenders operate outside their criteria and which ones are worth talking to.
‘If someone chose to go to a specialist sub-prime mortgage broker who does not have such knowledge then they might not have got the best quality advice.’
Claims management firms have proliferated since the PPI scandal unfolded, taking in customers’ claims in exchange for hefty fees, while those which employ methods such as junk text messaging and cold calling have angered millions of phone customers.
But the procedures in place for individuals to submit their own claims for PPI so you avoid claims firm fees are relatively simple, with This is Money’s guide explaining the process.
WHAT FORM COULD MORTGAGE MIS-SELLING TAKE?
Money Boomerang has said it will be focusing its attention on the following examples of what it claims is mortgage mis-selling.
1. Sub-prime mortgages: Customers who were eligible for standard mortgages were pushed into sub-prime products aimed at those with poor credit histories which come with higher interest rates and higher fees for the brokers.
2. Self-cert mortgages: Brokers tell people they can self-certify their income when applying for a mortgage rather than having their income certified by wage slips from their employers, again landing them with higher rates and fees.
3. Mortgage runs into retirement: Brokers do not have the right procedures in place to check that a customer can afford the mortgage if it is due to run into their retirement, when their income is likely to be lower.
4. Consolidating debts on interest only mortgages: Lenders offer customers loans or credit cards against their property, heaping extra debt on their mortgage. If the customer has an interest-only mortgage, this debt does not get paid off until you reach the end of the mortgage, meaning the amount you repay could be twice the value of what you’ve spent.
5. Low value capital raising: In the event an individual needs cash, for example for home improvements, brokers offer to add the amount on to their mortgage, but this comes with hefty broker and arrangement fees that can almost double the cost.
6. Interest-only mortgages: Customers are sold interest-only mortgage products without checks being made on the repayment vehicle they in place for when the mortgage matures to ensure it is adequate, or simply were not told they needed a repayment vehicle in place. Similarly people who are on repayment mortgages they can no longer afford remortgage onto an interest only, again without being aware of the implications.
7. Extending the term: Having paid off a certain element of a mortgage, a broker extends the term, say from 20 to 25 years, without their knowledge and without providing a comparison of the shorter term and longer term implications.
Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-2302797/Claims-firm-says-thousands-mis-sold-mortgages-PPI.html#ixzz2S8VT7496
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