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FCA voices concern over claims against interest only mis-selling

May 7th, 2013

As announced last month, financial claims firms have begun targeting the mortgage market, with their sights fixed firmly upon mis-sold interest only mortgages as a paramount opportunity for a case. But as these firms ramp up their advertising process this week, the Financial Conduct Authority has raised concerns that many would-be claimers may not even have a valid case or could quell their fears through cheaper means.

Many of the firms currently pushing for enquiries in this area are now seeking new forms of revenue, with the PPI mis-selling claims market seemingly drying up. The common perception amongst these firms is that there is an un-tapped market for investigating poorly advised self-certified, sub-prime and interest only mortgages over the past decade. One such firm, Money Boomerang, has been prominent in their bid for business in this area, and have this month released a TV advert to promote their services.

To put them in the spot-light, it appears the company is seeking customers to make contact if they feel that the adviser dealing with their case did not fully explain the terms and conditions of their new mortgage. In addition, the company are trying to pin-point circumstances where a more beneficial scheme for the adviser which involve the selection of a higher commission rate, rather than the most appropriate option for the client for a lower income being the proposed plan.

The fear within the market is that these claims will further rise over the next 6-12 months, whether there is merit for a valid claim or not. And the FCA may have inadvertently had a hand in increasing activity in this area, as a recent report issued by the regulatory body suggested that half of those borrowers with an interest only mortgage are not likely to have the requisite level of funds available to pay back their debt, when their loans fully mature. The current estimates are that there are around 1.3 million homeowners in this position, with a predicted average shortfall of £71,000.

In a bid to stave off any increase in claims, the FCA has requested that lenders make contact with customers considered to be on the brink of struggling to repay their loans. Martin Wheatley, the head of the FCA, has recently stated that as it stands, the regulator has not found evidence that mis-sold interest mortgages are rife within the market. He said: “This is not one of those complex products. It is what it says on the tin.”

In addition to the FCA comments, the Financial Ombudsman Service, the independent arbitrator for disputes between customers and financial institutions, concurs with the belief that claims for mis-selling in the case of interest mortgages are likely to be limited. A spokesman said: “The FCA review concluded that the vast majority of people were fully aware of the conditions of the mortgage they took out.

“Even people in the other category might not have a claim for mis-selling. Even if you weren’t aware of the terms of the loan it doesn’t mean you weren’t told about them.” And on the merit of utilising the services of claims companies, the representative also said: “If you do think you have a valid complaint there is no need to use a claims management company. You can make that complaint directly to us for free.” Companies offering to take on a case will often charge an up-front fee to manage the process, or in others, will take an overall commission of 25% from any successful payout.

Article by: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 0844 44 88 80

Email: media@contractormortgagesuk.com

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