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Alarm as watchdog bares its teeth

The Financial Ombudsman Service has sent out a warning to the mortgage industry that it will make significant awards to customers who have been missold homeloans.

Principal ombudsman Tony Boorman told a Council of Mortgage Lenders’ complaints handling seminar earlier this month that mortgage complaints have nearly doubled compared with the same period last year.

Boorman said: “We see cases where I find it difficult to imagine how the lender could have considered the customer capable of maintaining the required level of payments. Rather, it seems that the advice has been more about generating commission or fee income than a fair assessment of the interests of the customer.”

He said that in such cases, the FOS will seek to put the consumer back into the position they would have been in if the poor advice had not been given.

“In some cases, the impact of poor advice can be clear and significant. We can and do make significant awards where there is a clear link between poor advice given and losses incurred by the consumer,” said Boorman.

But Association of Mortgage Intermediaries director general Chris Cummings is warning the FOS against automatically importing misselling lessons from the investment market into the mortgage market.

Cummings says: “I am disappointed by the strength of the FOS’s comments, bearing in mind that the market has always been a low complaint industry. Putting the consumer back into the position they would have been in, what does that mean? It needs to be careful not to import lessons from the investment market. The mortgage market is fundamentally different.”

Cummings points out that buying a mortgage is a lifestyle decision. He says there is a role for lenders and intermediaries to counsel borrowers on affordability but at the end of the day, the consumer will make their own decision.

John Charcol senior technical manager Ray Boulger says: “I find it a bit worrying that someone in a senior position at the FOS is making those kind of comments. There is no harm in learning lessons from the investment market, as long as it recognises which parts are relevant to the mortgage market.”

Boulger points out that it would be very difficult for the FOS to decide what constitutes poor mortgage advice. He says: “Do you calculate compensation on what some alternative advice would have been by a different adviser? That would be very difficult. A cheap two-year fix two years ago cannot be seen as bad advice if it was the best option at the time. The decision has got to be based on the best advice given at that particular time, not with hindsight.”

He says two different advisers could have different opinions of the market at any one time.

“One adviser could believe that interest rates are going to fall sharply so will recommend a different mortgage from an adviser who does not hold the same view. That cannot be called bad advice. The ultimate decision has to be made by the borrower,” he says.

Boorman also warned that the impact of the credit crunch can be “expected to find its way into the complaints received by firms and hence into the ombudsman’s postbag”.

He said: “In part, this will happen simply because customers in financial hardship can be expected to look more critically at the services and charges of lenders. Much as the stockmarket falls earlier in the decade helped expose misselling of investment products, so credit restrictions today will expose doubtful lending practices and poor customer service in the lending sector.

“Complaints about brokers account for some but by no means all of the increasing caseload of mortgage disputes that we have seen. Indeed, most major lenders appear to have experienced a significant growth in referrals to the ombudsman in the second half of the year.”

The Mortgage Practitioner sole practitioner Danny Lovey says: “The FOS is creating a climate where the consumer has someone to blame for their own misjudgements and misfortune. It feels like the FOS is looking for something that is not there.”

He points out that mortgage endowment misselling meant a lot of consumers got compensation which they did not deserve. “A lot of people lied about not being told certain things and got compensation, with ambulance chasers helping them,” he says.

Lovey says Boorman’s comments are unhelpful because the mortgage market is not a misselling market. He says: “The problem is that ambulance- chasers will start appearing and they are going to damage the industry even further at a time when it is already struggling. It feels like it is another threat hanging over us all on top of all the other threats from the FSA.”

A CML spokesman says: “In his speech, Tony Boorman said that most of the complaints received in the last year related to the administration of mortgage accounts and reflected the day-to-day problems that inevitably occur in big customer-facing businesses. We will have to wait and see what other themes, if any, emerge from the ombudsman’s workload.”

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