While mortgage mis-selling primarily relates to what is said and done (or not said and done) at the point of sale of the mortgage what about afterwards? What about the terms of the mortgage? Are they unfair? If so, can they be challenged?
There has been speculation in the media about various matters including:
- Mortgage miscalculations of interest;
- Mistreatment of mortgage arrears;
- Secret Commissions.
Mortgage miscalculations of interest
The terms and condition of a mortgage, whether regulated or unregulated, contain provisions relating to interest and charges. Not all terms and conditions will define the application of interest and charges in the same way: some will charge interest daily, others monthly. Similarly, the application of charges is normally defined by the mortgage terms and conditions in reference to some trigger event such as a mortgage product change, or breach of terms and conditions by the borrower. In the case of a regulated mortgage contract the application of interest and charges is also subject to rules under the Financial Services and Markets Act 2000 (“FSMA”) and rules specified in the FCA handbook.
Lenders will generally rely on a mathematical algorithm contained in a software programme to assess interest and charges especially in respect of volume based transactions. But what if this formula itself is incompatible with the mortgage terms and conditions and/or FCA rules? Or where the mortgage terms and conditions themselves provide for an application of interest and charges in a manner incompatible with FSMA and FCA rules. Are borrowers not entitled to compensation if they have paid too much interest or been overcharged in breach of mortgage terms and conditions or FCA rules?
On the face of it, there are some examples of this:
In 2013, the Co-operative Bank undercharged some customers for their first mortgage payment (by only charging interest) which pushed up the cost of subsequent repayments. They subsequently announced that £105 million had been set aside to deal with mis-selling issues.
Also in 2013, the FCA fined Clydesdale Bank £8.9m for “failing to treat customers fairly” after it miscalculated the repayments on more than 42,000 mortgages and failed to inform affected customers. The miscalculations meant that some people on variable rate mortgages were underpaying, while a few were overpaying. A £33m redress package was also put together.
Mistreatment of mortgage arrears
A thematic review by the FCA back in October 2016 concluded that around 750,000 mortgage borrowers could be due compensation owing to the way that lenders collected mortgage arrears. It found that those who fell into arrears commonly had arrears added onto their mortgage (or capitalised) and yet lenders at the same time often continued to take the arrears payments separately. It was found that this was particularly prevalent upon a product change, or a change in interest rate.
While this meant that arrears would be paid more quickly it led to concerns that borrowers may have been deprived of funds to pay more expensive priority debts and possibly led to higher fees being charged.
Secret commissions
It is commonplace that where the sale of a mortgage takes place through a mortgage advisor that such advisor will be remunerated by the lender in the form of a commission. The FCA’s mortgage rules (MCOB) mandates the disclosure of such commissions to the borrower in a standard form. Judgments in the cases of Wilson & Anor v Hurstanger Ltd [2007] and McWilliam v Norton Finance UK Ltd [2015] have both clarified that commissions received by brokers must be disclosed in their entirety to the borrower, including details of the amount of the commission- in keeping with the fiduciary duties owed on the particular facts of those cases.
Key Issues
While some of these issues may be historic- and lenders may have got their act together- there is no harm in seeking expert help to identify if you have been levied the correct level of interest and charges on your mortgage; nor to establish whether your arrears have been dealt with properly and whether any mortgage brokers you used have been sufficiently candid to you about how they were paid.
