I have been speaking to a number of mortgage gurus over the last few days and the prickly topic that keeps cropping up is mortgage miss-selling.

I have been unsure as to whether we should raise the subject or not on the blog, as it just seems like another kick in the guts of a fragile industry, but it does need discussing in the interests of consumers and is a step forward in restoring confidence for the future.  I am going to raise my head above the parapet in the hope of getting some constructive comments.

Previously I held the position of CEO for a regulated financial services network. As a perk of the job I had the joyous responsibility of overseeing many 10,000’s of mortgage’s sold by advisers under my FSA regulatory watch. Whilst I am confident we policed our advisers well, I am more than aware that a number of  non related large mortgage businesses and advisers completely ignored compliant and basic responsible lending principles.

This toxic topic has been bubbling for more than a year now, and I now have it on good authority that a financial explosion of mortgage miss-selling could be about to hit the fan.

We are aware of many cases whereby people have borrowed £100,000’s whilst being on very low salaries and are now sat in what can only be described as  ”mortgage hell”.

Now here is the big question, if you sit down with your mortgage or financial adviser and he/she identifies as a result of a mortgage review that the mortgage sold to you is not fit for purpose and you should never have been advised to take it in the first place, do they;

1. Advise you to complain and try to get some compensation.
2. Explain the long term impact of being with a toxic lender for the forseeable future.
3. Ignore the above and attempt to get you on board with a new mortgage lender.
4. All of the above.

Now I am not a regulated adviser, and nor do we refer clients to financial compensation claims firms at Trumpo (at the moment!) but I would expect a qualified adviser to act in the interests of the client in front of them at all times as is his/her regulatory obligation. And this is why the preverbial may be about to hit the fan.

I would hazard a guess that we have 1 Million + challengeable mortgages out there at the moment, I dont have enough numbers on my calculator to calculate the potential claims values, but the numbers I expect would make you dizzy.

If we take the issue of an average person who has been given bum mortgage advice.

Example based on an average mortgage of £100,000.

Good Advice

Client borrows £100,000 with a good lender at 4% over 25 years, they would pay back a total of £158,000

Bad Advice

Client borrows £100,000 and received bum advice, and ended up with a specialist fasttrack (i.e. no questions asked) lender at 7.5% over 25 years they would pay back a total of £221,000.

Client cost for bad avdvice £63,000.

Is the client entitled to £63,000 compensation if it’s proved they received bad advice, and who pays it?

This is a huge problem, the advisers who provided the clients with the wrong product are probably no longer in business. The Financial Services Compensation Scheme (FSCS) who would pick up the tab for miss-selling if an FSA regulated firm goes out of business, is struggling to cope as it is at the moment with the Banks and Finance Houses PPI miss-selling claims. 

Tragically these miss-sold clients are unlikely to be able to move to a new mortgage product or lender under the new lending guidelines post credit crunch, so are basically trapped with their current mortgage lender.

Advisers who provided the bum mortgage advice would have needed professional indemnity insurance so their is a potential to claim against this policy, but if no joy found then it goes onto the Banks and Lending institutions themselves.

The advisory community and banks who fund the (FSCS) compensation scheme are already on a financial knife edge and certainly can’t pay the increase in annual fees that would be needed for the £10’s of billions of mortgage miss-selling claims.

So next in line is the good old tax payer!

Now I am completely unsure  of how something of this magnitude could be handled, and I would really like to hear what advisers feel should happen, surely it can’t all be brushed under the carpet when the average Joe may be paying £63,000 over the odds over the next 20 or so years?

I am scratching my head on this one!

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