Buying a new home should be exciting, particularly if it is your first home. Many of you will be familiar with the process: You find your dream house and your mind starts to buzz with thoughts about how you will change the layout and décor, to make it your own. I remember the feeling well. But with property prices, it seems, always increasing, how can you make this dream a reality?
Almost all house purchase transactions are conducted with the aid of a mortgage: the largest financial transaction most of us will undertake in a lifetime. Therefore, nearly everyone who owns a home with the assistance of a mortgage sought and relied on the advice of a mortgage broker to find you the mortgage which best fits your circumstances and affordability.
So, what happens when things start to go wrong, and how do you know if you may have been mis-advised?
Let’s take a look…
Residential Interest-Only Mortgages
Interest-only is a repayment type of a mortgage. The main other type of mortgage is the type where you repay capital AND interest together. Interest-only mortgages serve a specific purpose and have worked out well for many people. However, for a residential purpose in particular, this product was never designed to operate as standalone without a repayment vehicle in place, and it can therefore go horribly wrong when it’s incompatible with a client’s financial situation.
As some of you may recall, the period prior to the 2008 financial crisis saw yearly house price increases of more than 10%. Such house price inflation encouraged many brokers to recommend interest-only mortgages without a repayment strategy, irresponsibly relying on the increase in house prices as a way of a client repaying the capital and downsizing in future. Even after the financial crisis of 2008, this sale practice continued by way of shoehorning a client’s affordability for a mortgage to fit with the lower monthly repayment of an interest-only mortgage. This resulted in consumers paying much more interest in the long run, as interest-only mortgages are nearly always more expensive than other mortgage repayment types.
Were you advised to take out this type of mortgage under the premise of freeing more monthly income to enjoy spending on other things? Were you convinced of this product as a way of getting on the property ladder without an assessment undertaken of how you would repay your capital in the future? Should you have been directed to seek purchase of a cheaper property with the aid of a capital and interest mortgage to ensure repayment of your loan at the end of term?
Ask me, because I am a qualified mortgage advisor and a lawyer who specialises in these claims.
Another often irresponsible lending practice involved the consolidation of both secured and unsecured existing debt into an interest-only mortgage. Given that borrowing in order to obtain a mortgage often involves extending the debt over a much longer term, this means that much more interest is charged on the debt consolidated over the lifetime of the mortgage. Consolidating existing debt into an interest-only mortgage also leaves your debt still outstanding at the end of the mortgage term. Furthermore, consolidating unsecured borrowing specifically into a mortgage also puts you at more risk of losing your home if at any point you find yourself in financial difficulty and unable to meet monthly repayments. Any mortgage broker should therefore carefully consider and assess whether this is the right thing for you to do, given the risks and the increased costs.
Frequently, I have found that debt consolidation was the wrong advice, often given to generate the broker a fee to the detriment of their client. In such cases, there is likely to be a claim against the broker, which I will advise you about.
Are you a mortgage prisoner?
The period prior to the financial crisis of 2008 saw the riskiest lending practices with certain mortgage lenders offering loans in excess of 110% of property values. I worked in the financial industry around that time, so I know this first-hand. Following subsequent changes to the industry’s lending criteria and with many of those lenders going under due to their dubious business models, large numbers of mortgage accounts were transferred to administrators in order to support the continuing transactional requirements of these mortgages. The relevant administrators are only able to service the mortgage account without access to alternative product offerings to affected homeowners.
Following radical changes to the way affordability assessments are conducted, hundreds of thousands of homeowners are still trapped in their mortgage unable to benefit from the substantial drop in interest rates, due to new lending rules and income multipliers applied to the underwriting process. In many circumstances, people also do not have enough equity in their home due to a drop in their property’s market value. Such unfortunate, trapped people are what we know as “mortgage prisoners”.
Have you been turned down for a re-mortgage due to you having insufficient equity in your property? Or are you unable to now borrow enough due to the income multiplier now applied? If so, you could be a mortgage prisoner and I recommend that you get in touch with me.
This type of mortgage lender caters for clients who are unable to meet regular lending criteria applied by “prime” lenders. This could be due to a client’s financial history or other circumstances such as residency status or property type. Historically, higher risk subprime lenders charge higher interest rates and higher fees. Subprime lenders also often typically avoid operating from their own outlets and rely very heavily on mortgage brokers to sell their products, often attaching very attractive commission fees to their broker arrangements. Sadly, in many circumstances, this led to the client being directed towards this type of lender even when in some cases their criteria matched a prime lender’s requirements, ultimately leading to clients paying much more interest and higher fees on their mortgage.
Contact me if you want me to advise you whether your subprime mortgage was mis-sold to you. Often, the same bad apples come across my desk.
Lending into retirement
In my experience, the highest record set by a client that I have personally dealt with had a mortgage term ending when they reached the age of 98. Yes, 98! Astonishingly, this client had no private pension income to support ongoing repayment on their mortgage and would have to rely on their meagre state pension to repay their mortgage as well as covering their other living expenses.
Mortgage brokers are under a duty to not only consider affordability of your mortgage in the short term, but also to consider how you would repay the capital in the future, bearing in mind any change to circumstances known to you at the time of the advice, which could impact your ability to repay. Does your mortgage term take you beyond your retirement age? Was this assessed appropriately by your adviser? If this is you, get in touch with me.
Much of the mortgage mis-selling that I have in-depth experience of as a lawyer dates back to the period prior to the Financial Conduct Authority’s (FCA) review into the mortgage market in 2013. Amongst other things, this review estimated that 2.6 million interest-only residential mortgages will mature between 2018 and 2041. Of those, 600,000 will have matured by 2020 with 48% of people experiencing a shortfall. For many, the only way of repaying the capital is to sell their home.
Following this review, a much more stringent regulatory framework was introduced to include tighter affordability criteria assessments. Sadly, much damage had already been done to unsuspecting clients and Government figures now show property repossessions increasing year on year. Seeking redress for clients therefore has to be priority, not only to compensate them but to also discourage such practices from becoming the norm again.
If you feel any of the information above is relevant to your circumstances, then Truth Legal’s promise to you is to investigate every avenue available to appropriately assess the viability of your claim. Contact us today for expert advice.