Scandal of home loans mis-sold to win commission for brokers
Homeowners are paying hundreds of pounds a year too much in interest after being mis-sold mortgages by advisers eager to land big commissions.
Many people with poor or incomplete credit ratings are forced to take on specialist, more expensive, home loans, known as “sub-prime” mortgages. But half of those sold this type of loan may have been eligible for a cheaper mainstream deal, according to Carl Wright, managing director of mortgage advice firm Cartel.
"Brokers are knowingly recommending the wrong mortgage to secure higher commissions," said Wright. "I have been told by directors of sub-prime lenders that at least half of the customers signed up to sub-prime loans could have been eligible for mainstream, cheaper deals."
"Any broker placing a client on sub-prime unnecessarily does it for one reason: commission."
The best interest rates on regular mortgages average 4.5 per cent, but sub-prime rates tend to be about 7 per cent.
A recent investigation by City regulator the Financial Services Authority revealed that in 80 per cent of cases, firms were not following the proper procedures when advising on sub-prime loans.
The FSA’s Andy Watson said: "Sub-prime is a priority area for our mortgage supervisions. It is difficult to establish the level of consumer detriment or potential mis-selling, but we will be looking for better evidence of compliance in the future."
News that the number of homes being repossessed is at its highest for almost a decade reveals the extent of homeowners struggling with mortgage repayments. The rate of repossessions rose 66 per cent between July and September, compared with the same period last year, and the crisis is expected to get worse. Wright added: "This could be a direct result of someone being recommended the wrong mortgage, which can earn a broker up to £5,000."
Chris Cummings, director of the Association of Mortgage Intermediaries, said: "Consumers are protected by the Financial Ombudsman Service and are free to make a complaint if they fell they have been mis-sold. But I am confident that Mr Wright’s comments are incorrect." Borrowers might have a poor credit score because they do not appear on the electoral roll, have had several jobs or lived at a number of addresses over a short period of time. It could even be a result of simply forgetting to pay a small utility bill then moving away. Equally, divorce and redundancy can radically alter people’s finances, lowering their credit rating. And the vast number of companies offering high levels of credit makes it easier to run into debt problems. Many people have minor credit problems, such as low-value County Court Judgements or mortgage arrears.
Publication date: 30 October 2005
Publication name: The Sunday Express