Mis-sold mortgage case: Court of Appeal finds in Claimant’s favour
If you aren’t a financial expert, you probably rely on financial advisors to guide you on making the right financial decisions. You’d hope the advice is the best available but if they are guilty of financial services negligence, who pays and how much?
A recent case in the Court of Appeal last week illustrates the difficulties faced when claiming after financial advisers give bad advice. In Emptage v FSCS, Mrs Emptage owned a property with a relatively modest repayment mortgage of just under £40,000. She sought advice from a mortgage broker on reducing her borrowing. His rather novel advice was to re-mortgage with an interest only mortgage for roughly £112,000. The cunning plan was to invest the balance in a Spanish property, with the aim of making a capital gain to pay off the mortgage on the original property and have a nice surplus.
Needless to say, the Spanish property market collapsed and Mrs Emptage did not have the means to repay the new increased mortgage.
Negligent mortgage adviser
Unfortunately, by this stage the negligent mortgage broker had suffered his own financial collapse and was not in a position to offer compensation for the negligence. The Financial Services compensation scheme (FSCS) provides compensation in cases where financial advisers, whom the Financial Authority has authorised to act, are unable to satisfy claims in respect of regulated activities.
The FSCS argued that the losses occurred because of an investment in Spanish property which was not a regulated activity, rather than because of the re-mortgage itself. They therefore refused to compensate for the losses arising from the Spanish property collapse. They offered £11,500 but this left the Claimant with a balance on the re-mortgage of £98,000 which she and her partner would be unable to repay without selling their home.
Compensation for bad financial advice
Mrs Emptage applied for judicial review of the FSCS decision and won before the High Court. On the FSCS appeal, last week the Court of Appeal reiterated that the Claimant was entitled to fair compensation for her losses. The Financial Services Authority is supposed to provide a fair level of compensation put clients back in the position as if the negligence had not occurred.
The court decided that the advice on the re-mortgage and the advice on the Spanish property investment were one and the same bad advice. Mrs Emptage had no means to repay the re-mortgage and although the broker’s advice related to an unregulated activity (investing in a property abroad) the mortgage advice nonetheless involved putting the client’s home at unnecessary risk. The mortgage advisor knew that the client would unlikely have means of repaying the loan unless the investment matured and provided the necessary funds. This exposure to risk rendered the mortgage unsuitable and the loss could be attributed to that risk.
Claiming for mis-sold mortgages
Mortgage mis-selling cases are on the increase following poor financial advice. The route to compensation is not always easy because Defendants and the FSCS are intent on resisting cases. It will require determination and the right legal team on your side to win your case and win the right amount. This recent case opens the door a little wider to allow fair compensation for victims of negligence. Read more about financial adviser negligence.
