In claims for negligence (such as mortgage mis-selling) a cause of action accrues when a negligent act or omission has taken place and caused loss- both elements are required to bring a claim. According to s.2 Limitation Act 1980 anyone wanting to bring a negligence claim has six years from when the cause of action accrued to do so.
There is one oft-quoted exception set out in s.14A Limitation Act 1980: if an individual does not have the necessary knowledge to bring a claim within six years from when the cause of action accrues (for example, he did not know that he had suffered loss, or did not know about the negligent act or omission causing the loss, or did not know the identity of the negligent party), then the six-year rule can be extended. In such cases, a claimant has three years from when he knew or ought reasonably to have known that he had a claim up to a maximum of 15 years from when the cause of action accrued.
The above provisions of the Limitation Act are broadly mirrored by the Financial Ombudsman Service (“FOS”) in its DISP rules.
So is the above a charter for individuals mis-sold mortgages to do nothing? Leave the papers in the dusty loft or cold garage for another year? Especially when they have 15 years anyway.
Do not be so sure.
Case Study
So let’s take the case of Aleksei reported on the FOS website as below:
Aleksei took out an interest- only mortgage in 2001- in 2014 he complained to the mortgage lender that he didn’t have a way of repaying it.
The lender said that Aleksei’s mortgage was suitable and that the FOS couldn’t consider his complaint under the FCA’s Dispute Resolution (“DISP”) rules.
They said Aleksei had taken out his mortgage more than six years ago. And, because of the paperwork he’d been sent, he should have realised more than three years ago that he had cause to complain.
Aleksei didn’t think that this was fair, so got in touch with the FOS.
The FOS looked at the information that Aleksei had received about his mortgage over the years. The FOS didn’t find anything that could have prompted Aleksei to realise that his interest-only mortgage wasn’t suitable for him.
The FOS decided it could look into his complaint.
Key Issues
While Aleksei’s case was looked at by the FOS more than 13 years after he took out the relevant mortgage do not think that this will always be the case. The FOS is not bound by precedent in the way that Courts can be and each case is decided on its individual merits. A different adjudicator or ombudsman may well have taken an alternative view.
Further it is clear that any indication sent by the lender to Aleksei to suggest that the interest-only mortgage was not suitable- which may have been a routine letter or e-mail asking him about how he intended to repay the capital at the end of the mortgage term- is likely to have been sufficient to put him on notice and to start the clock ticking for limitation purposes. In view of a number of FCA reviews into interest-only mortgages (most recently in 2013 and 2018) it is now more likely that lenders will provide regular updates to interest-only customers- especially in the year or two before terms expire.
Individuals should not delay: if they think that their mortgage may have been mis-sold they need to act now and seek independent advice.
The dusty loft and cold garage could provide compensation: but only if they are searched right away.
