How To Know If I Have Been Mis-Sold On My Mortgage
While there are many different kinds of loans across the UK, some of the most highly regulated of those are mortgages. The Financial Conduct Authority (or FCA, for short) regulates all mortgages under the Mortgage Conduct of Business rules. The goal is to protect consumers at all costs, but unfortunately, it doesn’t always work that way. Instead, some people feel they have been mis-sold on their mortgage, and that can be incredibly frustrating and even dangerous, as it may mean you won’t actually be able to afford the home you’re in.
What Does it Mean to have a Mis-Sold Mortgage?
The idea of a mis-sold mortgage actually comes from the prefix mis, meaning badly. A quick Google search will reveal a couple of errors when it comes to this terminology. It’s actually not “miss-selling,” or even “misselling,” it’s mis-spelling. “Miss sold” means something completely different. The idea here is that you add the prefix “mis” to the word selling to create a word that means “badly sold.” Essentially, you can mis-sell anything. There are mis-sold pensions and mis-sold insurance, too, but when it comes to mis-sold mortgages, things can get quite serious.
Mortgage providers actually have strict rules they have to follow every single time they make a loan to anyone. Among those rules are making it clear exactly what a borrower’s terms and conditions are. If a mortgage provider didn’t do that for you, you may have a mis-sold mortgage.
How To Tell
It can be fairly tough to tell if you have suffered from a mis-sold mortgage because it’s not really about whether you’ve lost any money in the deal. Instead, if the mortgage isn’t right for you because of the risk or the terms of the loan, you may have a mortgage that is mis-sold, and you may be able to make a complaint about that. Keep in mind that you can’t complain just because it’s performing badly in the long run. Remember that your home is an investment, and any time you make an investment, you might lose money on the deal. You can complain, though, if you weren’t told about the risks that were involved in your mortgage from the outset. Imagine, for example, you weren’t told about the commission the advisor would receive from the lender. In that case, you’ve been mis-sold on the mortgage itself. You may also be in this position if you were told to overstate how much you made so you could borrow additional funds. If you met with a broker and were advised to switch lenders, but no one told you about the fees and penalties involved, you would also be able to make a complaint. If you feel like you weren’t told about the risks, penalties, and fees, or you were handed a product that didn’t really suit your needs, you were mis-sold your mortgage.
What To Do
If you find yourself in this situation, the first thing you should do is to act as quickly as possible. You can complain to the Financial Ombudsman Service, but there’s a time limit. It’s six years from the date you were sold the product or three years from the date you noticed that something was wrong with the product.
If you do intend to complain, you’ll want to be as clear and concise as possible. Be sure you’re sticking to the facts involved. Gather any relevant information you have as well as any written proof of your scenario. Make copies of the paperwork you have from the date you initially signed up for the product, too.
Once you’ve gathered all of that information, it’s time to complain to your provider. This could be your broker, your lender, or both. Either way, to make a complaint, you’ll need to ask for the company’s internal complaints process. Every company should have one, and it will tell you who to contact. Typically, you can find this information on the company’s website.
This is not a fast process, and it’s important to remember that. The company has eight weeks to respond to you. If they don’t, you can reach out to the Ombudsman. If they do, but you’re unhappy with their final response, you’ll have six months to complain to the Financial Ombudsman service. The Ombudsman service is independent, and they’ll investigate your complaint free of charge, but you must follow the right procedure before you even begin to work with them.
Even if the Ombudsman service finds in your favour, there’s a limit to the amount of compensation you can get for your loss. That limit is £375,000. If the action, however, happened before 1 April 2019, that limit is just £160,000. Every year, the limits readjust to keep pace with inflation.
How To Find a Good Mortgage
The single best way to prevent this problem is to find a mortgage that actually meets your needs, and there are several things to look for in the right mortgage. Initially, the best first step before you even begin to search for a mortgage provider is to better understand your budget. You need to decide exactly how much you can afford to borrow. This will depend a bit on how much you currently make, how much your monthly expenses are, what your credit history looks like, and a number of other factors.
The process of deciding exactly how much you can afford starts when you take a look at your monthly income. You’ll want to decide what your gross monthly income is. You can typically do this from your pay slips, but if you’re self-employed, things get a bit more complicated. Typically you can talk to your accountant or financial advisor to get a better sense of what your gross monthly income is.
Once you understand how much money you have coming in each month, you’ll need to calculate your monthly expenses. Don’t forget that you’ll want to include all of your debt payments within this number, so if you have other outstanding debts like credit cards or other kinds of loans, you’ll need to factor those monthly payments in. Additionally, think about how much any insurance payments cost you from month to month. There are likely many other expenses in your monthly budget that you’ll need to account for as well. Think about your groceries, child care, and anything else you typically pay each month. The one expense you won’t want to factor in as you work is your current rent payment. Leave that out so you can see how much you have left to spend on housing.
Your income and how much you spend each month certainly help you decide how much you can afford to spend on a house payment, but you’ll need to consider your down payment as well. A larger down payment can help mean smaller monthly repayments. More than that, though, lenders tend to expect a certain down payment amount. The minimum deposit for a house in the UK is typically around ten percent of the property’s value. If you have a deposit of 15% or more, though, you’re likely to get the best mortgage rates. Some lenders are even concerned about the mortgage market today, thus require a deposit of at least 15%. If you consider the average home prices across the UK – £296,000 – you can expect to come up with a deposit amount of at least £29,600 at the minimum. That’s quite a bit for many people today. There are some helpful first-time buyer programs available that may reduce the down payment you are required to make, but not every buyer qualifies for those, thus it’s best to save as much as possible.
Once you know your budget, the next step is to actually begin shopping for a mortgage. It may help to better understand the types of mortgages available in the UK before you start shopping, though.
- Fixed Rate Mortgages: The single most common type of mortgage available in the UK today is the fixed rate mortgage. With this kind of mortgage, you pay the same interest rate for a certain number of years. Regardless of what might happen with the Bank of England’s base rate, you’ll make the same payment every single month. In most cases, you’ll take a two or five-year fixed rate mortgage. There are terms as long as 15 years available, though. Once you hit the end of the mortgage, you’ll have to either remortgage to a new fixed rate loan or you might be automatically moved to the lender’s standard variable rate mortgage.
- Tracker Mortgages: These kinds of mortgages help to stay consistent with the Bank of England’s base rate, then they tack a certain percentage on to that. For example, if the Bank of England’s base rate was four percent, and your tracker mortgage offered you a rate of base plus two percent, you could expect to pay an ongoing rate of six percent. If the base rate increases, so too does the cost of your mortgage payment. In the event it goes down, though, your mortgage payment usually goes down a bit too. It’s important to note, though, that there are tracker mortgages that can only fall to a certain level, so even if the base rate takes a serious dive, your payments may not experience the same dive. Tracker mortgages can be incredibly attractive because most offer an introductory period, usually around two years in length, where you pay a really attractive rate. At the end of the period, you’re typically moved to something that looks a bit like a standard variable rate mortgage if you choose not to remortgage your property.
- Discount Mortgages: This type of loan is also a variable rate loan, but it charges you the lender’s standard variable rate minus a certain margin. In some ways, it’s the opposite of a tracker mortgage. If the lender currently has a rate of five percent, then, and you have a discount of two percent, you can expect to pay three percent on your mortgage. As with other variable rate mortgages, if the base rate goes up, so do your payments. If the base rate goes down, you can expect to pay less in payments as well. Discount mortgages almost always offer buyers an introductory period, and that usually lasts for two years.
- Standard Variable Rate Mortgages: These are sometimes called SVR mortgages. Each lender has a standard variable rate that it can set the way it wants to. These aren’t always linked to the base rate, but they can be affected by it. If the base rate goes up, the rate on this kind of mortgage goes up, but not always by the same amount. Instead, it could increase quite a bit more. Not every lender offers an SVR mortgage, but some do offer this to those who may not qualify for a traditional mortgage.
- Interest Only Mortgages: Most mortgages tend to be on a repayment basis. What that means is that every month, part of your payment goes to repay the principal of the loan and part of it goes to make the interest payments on the loan. There are, however, interest only mortgages. With this type of loan, you pay only the interest on it for a certain amount of time. These loans can be as short as just a few years or as long as twenty years. Once the mortgage term is over, though, you owe the lender the same amount you initially borrowed, so you must pay the entire principal back or remortgage it with a different loan. Most lenders will only offer this type of loan if they see your ability to pay the full amount back at the end of the term. That’s why so many people who choose to buy to let homes use this as a financial vehicle or investors who intend to flip the home select these kinds of mortgages. Often these come with fairly high interest rates, too, so it’s important to understand them before you choose this option.
- Specialist Mortgages: There are other kinds of mortgages available as well. You can find mortgages made specifically for self-employed buyers, as they often can’t meet the paperwork requirements of a normal mortgage. You can also find mortgages geared specifically toward those buyers who have bad credit. Additionally, you can find guarantor mortgages for those who are having trouble getting on the property ladder and green mortgages for those who are buying new builds that have a higher energy-efficiency ratings.
When you have some sense of what you want in a mortgage, your next step is to begin shopping for the right product to meet your needs, and that typically leads to two key choices – working with a specific lender or working with a mortgage adviser.
A specific lender can be beneficial in a number of different situations. If you’ve done quite a bit of research (or you’re fairly good at financial research and you’d prefer to handle everything on your own), working with a specific lender is a great option. In fact, there are lenders that offer preferential mortgage rates if you already have a current account with that bank, which can mean great things for your budget as a whole. Additionally, some lenders have direct-only deals that mortgage advisors simply can’t access, making them ideal for home buyers like you. What’s more, though, is that you won’t have to pay broker or adviser fees.
If you work with a mortgage adviser, though, you’ll find a number of other benefits. On your own, you can search for many different mortgage deals, but the reality is that even after all of that searching, you may still not end up with the best deal to meet your needs. That’s especially true if you need a certain kind of mortgage, like one aimed at someone who is self-employed. When you work with an adviser, though, you work with someone who knows the market, and that can make for a much smoother process. Good advisers are aware of all of the potential deals available for people just like you, and they often have the information at their fingertips. That means less hassle than you might experience doing it on your own. What’s more, though, is that you could save thousands of pounds if you work with the right adviser, as they could connect you with an incredible deal. They may also help answer your questions, helping you decide what might be the right interest rate and what might be the consequences of applying for one mortgage over another. You will pay fees to a mortgage adviser, but often that’s a small price to pay for a mortgage product that is literally perfect for you.
If you think you’d like to work with an adviser instead of a specific lender, you’ll want to search online using various websites to learn more about brokers around you. You may also want to talk to friends and colleagues who worked with a mortgage broker in the past to help identify the right person for you. Be sure to thoroughly research each adviser, and pay attention to the fees they charge. You’ll also want to make certain the professional you choose is authorised and regulated by the Financial Conduct Authority. That will help protect you from being missold on your mortgage.
As you search, you’re likely to come across two different kinds of advisers. The first type is a restricted adviser. They are limited to mortgage deals from a very small number of lenders. Whole of market advisers are the other type, and they have access to mortgages from a number of different lenders. Typically whole of market advisers offer you the best possible deal.
With any mortgage adviser, you’ll fill out quite a bit of information initially before they begin to look for the right loan to meet your needs. Once they identify the various products for which you qualify, they’ll help you understand each one, how much you’ll pay from month to month, and how much you’ll pay on the loan as a whole.
Whether you choose to work with a broker or an individual lender, make certain you know exactly what you’re getting before you sign up for the mortgage. Being missold on a mortgage starts when you don’t really understand the product you’ve been sold, so you’ll want to read the fine print fairly carefully.
The Other Costs Involved With Buying a House
While many people only factor in the cost of the mortgage and the deposit as they prepare to buy a home, it’s important to understand that these aren’t the only spaces where you might find financial difficulties in the home-buying process. Instead, there are many other costs to consider as you buy a home. Here are just a few you’ll need to consider.
- Stamp Duty: Many people overlook the cost of stamp duty as they prepare to buy a home. Keep in mind that if you’re not a first-time buyer, you may need to pay Stamp Duty, particularly if the home you’re purchasing costs more than £250,000. You can expect to pay a Stamp Duty of between five and twelve percent of the purchase price of a home if you aren’t a first-time buyer. If you’re purchasing a home that costs £300,000, then, you could pay a stamp duty of £15,000. While you can roll these costs in with your mortgage loan, it’s far cheaper not to do so and just to pay it after you buy the house.
- Valuation Fee: In addition to Stamp Duty, you will also need to pay for the valuation of your new property. That gives the lender a chance to see how much the property you want to purchase is truly worth. The valuation on your new home typically costs between £150 and £1,500 depending on the value of the property itself. There are lenders who don’t charge for this based on the mortgage product you’re considering, but that can vary from lender to lender. It’s also important to note that this is not usually a structural survey. Instead, it’s just a simple valuation designed to identify the value of the home, so it’s not likely to show you any repairs that will be necessary. You can choose to have a more in-depth valuation done, but that will simply be another added cost.
- Legal Fees: You’ll need to work with a conveyancing solicitor to purchase your home. There’s quite a bit of paperwork to take care of when you purchase a home, and the legal fees involved usually run between £850 and £1,500. Often there are fees on top of that as well, including searches that could cost as much as £300 to help you understand whether there are any local plans or problems that could impact your new home in the future.
- Mortgage Fees: In addition to other fees, you can expect to pay some fees on your new mortgage as well. Typically this can include booking fees of up to £250 and arrangement fees of up to £2,000. As with the Stamp Duty, you can actually roll these in with your mortgage, but if you do so, you’ll be paying interest on those fees over the life of the mortgage, which means you’ll actually pay more in the long run than if you simply paid them at the outset.
- Removals Fees: Naturally you’ll also need to pay the cost of the removals company to handle your move, too. The average cost for removals is £800 if you’re moving the contents of a 3-bedroom home nearby, but if you’re moving a larger home or you’re moving a great distance, those numbers can go up considerably. What’s more, though, is that there are often hidden costs and extra services when it comes to removals teams, so you’ll want to do your research carefully so you can connect with the right company to meet your needs. While you can certainly handle the removal on your own, even hiring a van to move it from place to place, the reality is that in the process of moving, it’s just one more step you may not want to take, so often it’s worth it to pay the removals company to handle it for you.
There are so many costs to factor in outside of your mortgage, but understanding what those may be can help you better plan for the right mortgage product to meet your needs.
Protect Yourself from Being Missold
There are many different ways to protect yourself from being missold on a mortgage, and often it begins with knowing your finances and understanding all of the costs that come with home buying.