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Check points

The safeguards now in place should protect most lifetime lenders against customer complaints, says Mortgage Express product manager Roger Hillier

The FSA’s treating customers fairly principles apply to all mortgage customers, including those with lifetime mortgages. Once fully embraced by lenders, the principles should bring about a significant reduction in complaints because the grounds for complaint should theoretically be removed.

But the lifetime market is arguably a special case. Its products are complex by nature and call for an extra degree of care when it comes to dealing with customers.

Most lifetime lenders and brokers have given a great deal of consideration to the subject of customer complaints. The industry as a whole appears to be anticipating a tidal wave of complaints at some stage but how likely is this?

The industry has made significant progress since the equity-release misselling scandal 15 years ago. For lenders which have entered the market in the past five years or so, the checks and balances in place make it difficult to see where a high volume of complaints will come from. But it is inevitable that there will be a few complaints, as there are for every product and service sold or bought.

To gain an insight into who is likely to complain and their reasons, I asked lifetime lenders to share their experiences. I was encouraged to hear that they have received very few complaints. In a handful of cases, there were issues after a customer had died, raised by family members questioning the wisdom of lending money to a potentially frail elderly person. Broadly speaking, however, the level and nature of complaints were no different from those for other products.

The checks and balances that surround today’s lifetime mortgages should ensure that this product will only be recommended when it can be proven to be appropriate. The table (left) summarises the type of potential complaints and measures in place to cover any risks.

All these measures can give comfort to intermediaries and lenders that adequate protection is in place to mitigate against potential complaints. Many of the measures are relatively new to the industry and have yet to be tested but a quick referral to the point-of-sale file and supporting documentation should deal with most issues. There is always room for improvement but, at this stage, I think the industry has never been safer from customer complaints.

Source of Nature of Measures to complaint complaint mitigate risk ISSUES IN MORE DETAIL

The customer did not really understand what they were getting into and should not have borrowed in the first place

A key measure to mitigate against this risk is that the customer’s solicitor completes and signs a solicitor’s certificate confirming that it has been pointed out to the customer that they need get advice on several key areas. For the solicitor to act for them, the customer has to be considered in good mental health. If they are not, the customer typically has a power of attorney in place.

The customer may be in danger of borrowing too much

With the rise in availability of flexible drawdown mortgages, customers have a superb alternative to taking a big lump sum at the outset. The best protection against a future complaint is that the customer must justify the need for the money and when they intend spending it.

The customer has been sold the ‘wrong’ product

A sale is based on information collected at the fact-find and products available at the time. The appropriateness of a product should be documented in the suitability letter sent by the intermediary to the customer. Some intermediaries copy this to the customer’s solicitor.

Erosion of equity

This is a potentially difficult area. The impact of rolled-up interest can indeed quickly erode equity. A loan typically doubles after 10 years and trebles after 15 years or so. For all post-November 2004 completions, customers will have received an FSA-compliant key facts illustration, which includes comprehensive illustrations of how the mortgage balance grows. In theory, no customer who has received a KFI has grounds for complaining about their equity erosion. This is one of the benefits of mortgage regulation.

Property maintenance

This is a crucial aspect of the mortgage. It is in everyone’s interests that the mortgaged property is well maintained. Who pays for this and the customer’s responsibilities should be properly documented in the supporting literature and the KFI. Occasionally, there will be cases where a property has not been maintained and the lender has to revert to the mortgage conditions to ensure that repairs are carried out.


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