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Mortgage Mis-Selling claims in balance

April 2016

Mortgage Mis-Selling claims in balance

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Many customers drew on the rise in value of their homes by increasing secured borrowing during the property boom. A decade or so later, some customers can no longer afford the higher repayments, prompting claims for losses allegedly caused by reputed sales malpractice. Although the number of claims is relatively modest compared to PPI claims, the amount at stake in a legal claim for mortgage mis-selling frequently runs to six figures. This sharpens the importance of understanding the recent trends in this area. 

Most claims relate to advised sales of ‘MCOB’ regulated mortgages from 31 October 2004 onwards. Therefore, in addition to claiming lender negligence for breaching a common law duty to take reasonable care (in conducting the advised sale), customers commonly cite breach of regulatory grounds, including that the lender:

•failed to take steps to communicate in a way that was clear, fair and not misleading (MCOB 2.2.6R)

 and (for pre 26 April 2014 mortgages)

•failed to take reasonable steps to ensure that it did not make a personal recommendation of a product that was unsuitable (4.7.2R)

•did not give sufficient regard to the facts to make reasonable conclusions about affordability and the needs and circumstances of the customer  (4.7.4R). 

However, customers struggle to rely on hazy memories of events from many years earlier. Therefore, a complete sales file, recordings of telephone conversations and evidence of sales adviser training often disprove the alleged wrong-doing. 

If not, examining whether customer losses have been caused by the alleged breach(es), often brings claims to a proportionate conclusion. A lender should not be fully liable for customer losses where the customer’s own actions have significantly contributed to their losses. For example, where a loan consolidated debts, but a customer subsequently entered into further sizeable credit commitments, lenders may be able to establish a break in the chain of causation of the claimed losses.

Reported cases that have been decided by the Courts are difficult to find. Provided that lenders understand and respond suitability to claims when they arise, this should remain the position.

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