Overview
For most of us, our mortgage is the biggest and most important loan that we will ever have. It is therefore vital that you have the right mortgage for you. There are principles and rules about how financial service companies should behave and the processes they should go through in relation to mortgages.
However, in many cases in the past, lenders failed to follow the rules in place leading to consumers being left with mortgages that were unsuitable and that they cannot afford to repay.
Examples of mortgage mis-selling:
- Your mortgage ends after your retirement age date; and/or
- You took out an interest-only mortgage without proper consideration being given to the repayment of capital; and/or
- You borrowed money without proving your income (known as self-certification); and/or
- You did not provide evidence of your ability to repay the mortgage.
Common problems arising from mis-sold mortgages
If you were mis-sold a mortgage, you may have experienced some of the following problems:
- You struggle or have struggled in the past to make the payments;
- Your mortgage has been sold to a Vulture Fund who is demanding repayment and threatening proceedings;
- You don’t know how you will make the capital payment at the end of the Interest Only term;
- Payments go beyond your retirement date, that your pension will not support;
- Inappropriate interest rates.
How do I know if I have been mis-sold a mortgage?
You may have been mis-sold a mortgage product if at the time you took out your loan your lender did not act with due skill, care and diligence in its dealings with you. Examples include:
- Did not properly assess your individual circumstances;
- Failed to assess how you would repay the loan;
- Did not identify a repayment vehicle for your loan; or
- Failed to provide you with information about the options available to you.
Lenders must not recklessly, negligently or deliberately mislead a consumer as to the perceived advantages or disadvantages of any banking service provided.
The Rules surrounding the sale of mortgages?
The sale of mortgages (and many other financial services) is regulated by the Central Bank of Ireland. This body is tasked with:
- Protecting consumers when buying financial products;
- Regulating against bad practices; and
- Promoting an effective, trustworthy financial services market.
The Central Bank rules impose many obligations on lenders, to promote fair, honest and professional conduct, which is in the best interests of the consumer.
The Consumer Protection Codes contain principles and rules which regulated organisations must follow. Banks and lending institutions must also comply with the spirit of these Codes and follow good banking practice.
A claim for mortgage mis-selling will frequently rely upon showing that a lender has not followed good practice, Central Bank guidelines or, in some cases, the lender’s own rules. This misconduct results in an oppressive burdensome mortgage being granted to the consumer.
The Financial Services and Pensions Ombudsman Act 2017 created an independent, impartial, fair and free service that helps resolve complaints with pensions providers and regulated financial services providers and provides a means for compensation when a consumer has suffered a loss.
You may have been mis-sold a mortgage if you were sold any of the following mortgages:
Interest-only mortgages: With most interest-only mortgages, the borrower’s regular mortgage payments are such that they only cover the interest which accrues on the lump-sum capital borrowed under mortgage. The arrangement usually allows for much lower mortgage payments, but means that the capital amount does not get paid off during the course of the mortgage.
When the mortgage’s term ends, the capital amount becomes due – meaning the borrower must be able to make a large lump-sum payment to discharge to mortgage at that time. This can cause difficulties, especially if the borrower is not adequately prepared for it.
For example, when entering into the mortgage contract with you, lenders are required to ensure that the mortgage is suitable for you and must ensure that you have a credible repayment strategy in place – for paying both the interest and the capital amount of the mortgage. This could be a regular savings plan being kept for that purpose, an endowment policy, significant pension pot, a plan to sell assets like land or property, etc.
If none of this was discussed with you, your mortgage may have been mis-sold to you. Also, if the mortgage lender informed you that an unsuitable plan is sufficient, this can be used as evidence of mis-selling. Some examples of unsuitable plans include:
- Expecting the property you are mortgaging to increase in value sufficiently, so that you can sell it, and repay the capital with some left over to rehouse you.
- Relying upon risky investments to perform sufficiently well to allow you to pay off the capital sum.
- Expecting ‘windfalls’ of cash which are uncertain by nature – such as inheritances or personal injury claims for example.
Self-certification: These are mortgages in which you did not have to prove your income or outgoings in order to take out them. Essentially, you, the borrower, ‘self-certified’ that you were able to afford taking on the mortgage and could keep up with the repayments.
Given that the lender has responsibilities to check the borrower can afford the mortgage, being sold one of these mortgages can form a strong basis for a mis-sold mortgage claim.
Fast-track and self-certification mortgages often attracted high commissions for brokers and so many may have been sold by unscrupulous brokers to maximise profit, without the products necessarily representing the best choice for the customer.
Mortgages beyond your retirement age: If you have a mortgage which is due to end after your retirement date, your mortgage lender should have specifically discussed this with you when you took out the mortgage.
This is part of their obligation to assess your ability to repay the mortgage. After retirement, you will no longer be receiving a wage, so the lender must be assured that you would still be able to meet the required repayments through other means. If they did not consider and discuss how you would cover your mortgage payments after your retirement, it could constitute mis-selling of that mortgage.
Re-mortgage to consolidate debt: You may have been advised to consolidate smaller debts – such as credit cards and short-term loans – by re-mortgaging your house. The process usually involves paying off the smaller debts and effectively adding their value to your mortgage.
Whilst this can reduce your monthly outgoings in the short-term, it may also increase the overall amounts you have to pay. This is because, due to the larger capital amount of your mortgage, it will accrue higher amounts of interest than before, and over a much longer period than the short-term loans.
Depending on your circumstances, it is possible that your new consolidated mortgage might have been mis-sold to you – particularly if the potential consequences of consolidating in this way were not fully explored or explained.
How much compensation will I get?
Compensation for any kind of claim is intended to place you in a similar financial situation to that which you would have been in had you not suffered the harm in question. In mis-sold mortgage claims it is no different, and so any compensation you recover will depend on the amount of financial loss you have suffered due to the mis-sold mortgage.
The Ombudsman has the power to direct a provider to pay compensation of up to €500,000.
Are there time limits for making a claim?
If you think you have a claim, you need to act quickly as there are statutory deadlines known as limitation periods that apply to mis-selling claims. A claim may be considered outside of the usual six-year deadline if you can show that you only became aware of the potential mis-sale within the last 3 years.
I think I have been mis-sold a mortgage, what should I do?
If you believe you have been mis-sold a mortgage and have lost out financially, you may be entitled to compensation and/or a restructure .
If you complete our online application form, we will undertake a review of your mortgage details free of charge on a no-obligation basis.
Please complete the online form in the Apply Section of this website.