The Financial Ombudsman Service is scrapping the way that complaints over mortgage payment miscalculations are handled amid fears that lenders are failing to compensate borrowers adequately.
Compensation guidelines issued by the Building Societies Ombudsman Scheme and Banking Ombudsman Scheme are being suspended following a rise in the number of cases where lenders have calculated mortgage repayments wrongly.
Such mistakes leave borrowers potentially unable to pay off the loan in time. They then face steep increases in repayments or an extension to their mortgage term.
The FOS says complaints rarely reach the two ombudsman schemes because the guidelines encourage banks and building societies to handle compensation claims themselves. But it says this often results in an unsatisfactory outcome for borrowers as lenders fail to provide appropriate levels of compensation.
The FOS says it needs to adopt a single consistent approach to such complaints by N2, when it is due to acquire its powers. It is consulting with the industry with the help of the Council of Mortgage Lenders and Financial Services Consumer Panel to see what approach would best benefit borrowers.
Principal ombudsman David Thomas says: “Not unnaturally, customers expect financial firms to calculate figures accurately. Mortgage underfunding complaints would not arise if firms had simple checks in place to ensure the initial calculation was right. But, regrettably, the number of mortgage underfunding cases we receive is not diminishing.”