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FOS Mortgage

FOS Scenario 1 - Wrong FOS Mortgage

The intermediary arranged a tracker mortgage for a client that wanted a fixed rate.

The client took out a two-year fixed rate FOS mortgage. At the end of the fixed rate period she visited the adviser again and asked him to arrange a re-mortgage as she was having difficulty affording the new variable rate repayments. The adviser recommended the client take a 2-year Bank of England base rate tracker. After a couple of days the client contacted the adviser to say she had changed her mind and wanted the certainty of a fixed rate. The adviser agreed to arrange this FOS Mortgage for her but never did and, when the client reminded him, it was too late.

After a short time the base rate rose several times and the client complained, saying that because of the adviser’s oversight she had the wrong type of FOS mortgage and could not afford the payments.

Outcome

The Financial Ombudsman Service (FOS) upheld this part of the client’s complaint and asked the adviser to pay the difference between the fixed rate and the tracker for the two year period. £250 for distress and inconvenience was also awarded.

Compliance IT.com Comment and Tips:

• After having a fixed rate, the client returned because she was having trouble affording the variable repayments. This raises the question of affordability immediately for any new mortgage and, in this particular case, maybe another fixed rate would have been better than a tracker, especially if interest rates were predicted to rise.
• Advisers must keep a close eye on the current and predicted market conditions. Most providers give detailed weekly comment with predictions for the coming months.
• Would the FSA consider this adviser as treating the client fairly if the client could be locked into relatively low fixed rate for 2 years or a tracker when interest rates were predicted to rise (assuming overall arrangement fees were comparable)?
• Was the advice to take a tracker over a fixed rate really suitable for the client when she was struggling with variable rate repayments anyway?
• After agreeing to the tracker the client re-contacted the adviser to say she had changed her mind and wanted a fixed rate. Was the client really happy with a tracker in the first place?
  
• The adviser had possibly not gathered enough information from the client, even though it was just a re-mortgage.
  
• The adviser may not have correctly interpreted the client’s feelings and concerns and this means there may be training issues that need addressing.
• There is an administrative issue here because the adviser forgot to make the change from tracker to fixed.  Using a daily diary on a client management system will help avoid things like this ever happening.

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