Mortgage brokers and lenders will find it difficult to defend themselves against a rising tide of mis-selling claims, according to city law firm Reynolds Porter Chamberlain (RPC).
Figures released yesterday by the Financial Ombudsman Service (FOS) show the number of mortgage-related complaints jumped 56% over the last financial year.
RPC says firms will find the current downturn in the housing market more problematic from a legal standpoint than in any previous downturn.
Jonathan Davies, partner at RPC, says homeowners will often blame their advisers once they begin to struggle financially, and claims the presence of the FOS, rather than the courts, could cause difficulties for firms.
“In previous housing market downturns, claims had to be dealt with by the courts, but now consumers have the far easier and cheaper option of complaining to the FOS,” he explains.
“The danger for mortgage firms is that whereas the courts have to adhere to strict legal principles, the FOS does not – it simply determines complaints on the basis of what it deems fair and reasonable in the circumstances.
"So even where firms have met their legal obligations, they could still find that complaints are upheld against them.”
RPC says arguments from borrowers, which would not previously have held up in court, may be accepted by the FOS, and firms should be prepared.
Davis suggests professional indemnity premiums for mortgage brokers are likely to become more expensive as a result, and some firms may not be covered by existing policies.
“FSA activity previously made financial advisers almost uninsurable and there is a danger the same could happen to mortgage advisers,” he says.
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