Home owner wins mortgage advice test case
Posted: 18th June 2013
In a case which re-defined the scope of the financial services compensation scheme, a woman who re-mortgaged her home and invested almost everything she had in the doomed Spanish property market on the basis of ‘drastically incorrect’ financial advice has won her fight to recover her losses.
The woman had wanted to reduce her mortgage and pay it off early but ended up in a quagmire of endless debt due to admittedly negligent advice from an independent insurance and mortgage broker. On his advice, she had swapped the £40,000 repayment mortgage on her home for an interest only mortgage of more than £111,000 and ploughed over £70,000 into purchasing a flat in Spain.
When the Spanish property bubble burst in 2009, the woman was left with a mortgage which she had no prospect of paying off and the Spanish property which was virtually worthless. With her home at risk, the woman applied to the Financial Services Compensation Scheme Ltd (FSCS) which awarded her £11,522.98, a sum which her lawyers attacked as derisory.
She sought judicial review of the decision and the High Court subsequently saved her from ruin when it ruled that the award ‘in no way represented fair compensation’ for her devastating losses. The FSCS was directed to put her back, as far as could be achieved, in the same financial position that she would have been in had the negligent advice not been given.
In dismissing the FSCS’s challenge to that decision, the Court of Appeal rejected arguments that, as property investment is an unregulated activity, the woman was not entitled to be compensated for the consequences of her ill-fated foray into the Spanish property market.
The Court ruled that the advice of the broker was focused on the woman’s mortgage and should be viewed as an ‘indivisible package’ given in a regulated context. The property investment was indefeasible from the mortgage advice and the FSCS was not entitled to ignore the losses arising from the Spanish venture when assessing the fair level of compensation.
Lord Justice Moore-Bick concluded: “Once it is accepted, as it was, that the breach of duty consisted of recommending a mortgage which was unsuitable because it exposed the woman to the risk of being unable to repay the loan at maturity, it is difficult to see how it is possible to assess fair compensation without taking into account the loss caused by the occurrence of that risk. Failure to do so inevitably resulted in an award of compensation which bore no relation to the breach of duty or the reason why the mortgage was unsuitable.”