BUT MORE borrowers may be at risk over Clydesdale mortgages, reveals Jeff Salway
The Clydesdale has been told to pay damages to a vulnerable customer who was at risk of losing his home after being mis-sold a mortgage by the bank.
It could now be facing further complaints from borrowers who took out interest-only mortgages that were in reality short-term secured loans, after the Financial Ombudsman Service (FOS) ruled that it had mis-sold the product. Those complainants may include borrowers against whom the lender is taking repossession proceedings.
The customer in question, who requested to remain anonymous, had been offered an interest-only mortgage in February 2008 with a term of three years and six months. The intention was to review his circumstances at the end of the term and then switch to a repayment mortgage.
That would not be possible however, because the bank had effectively sold him a secured short-term loan that could not be converted to a repayment mortgage.
The borrower, who suffers from mental illness, had become unwell during the term and because of his reduced income was unable to repay the capital balance at the end of the term, prompting the bank to start repossession proceedings.
The repossession order was granted, but put on hold when the borrower appealed, said Lynn Fraser, project solicitor at Govan Law Centre.
“He consulted Govan Law Centre’s Ayrshire Homelessness Prevention Project because his mortgage lender, the Clydesdale Bank, had raised a repossession action against him as his mortgage had matured and the full balance had become due. As a result, he was facing homelessness and the additional legal fees and charges associated with a repossession action.”
He then complained to the FOS, claiming the mortgage had been mis-sold and that the bank hadn’t explained the risks when he took it out.
“He was not told that, if he became ill or had a drop in income, this would place him in a vulnerable position when it came to the need to re-mortgage in three and a half years time,” said Fraser. “This was why he felt he had been mislead and mis-sold a mortgage by the Clydesdale Bank. He was a first-time buyer and his position is that he would not have made the commitment to purchasing a house on what transpired to be a short term secured loan.”
The ombudsman agreed, ruling that the term hadn’t been suitable and that the bank hadn’t given him “clear, fair and not misleading” information about the mortgage.
Based on his circumstances the borrower should have been recommended an interest-only term of 25 years, it added. The bank was told by the FOS to reinstate the loan to end in 2033, cover the borrower’s legal costs in relation to the repossession claim and pay £2,000 for the “trouble and upset” caused.
The bank must also work with the borrower to find a way to make the mortgage sustainable and affordable.
A spokesperson for Clydesdale Bank said: “We have accepted the findings and are working with the customer to resolve this matter.”
The bank’s claim that it would have started repossession proceedings even if the term had been longer was dismissed by the ombudsman. It said the demand for repayment was instead made on the basis that the full balance was overdue because the mortgage term had ended, not because of the level of arrears.
But this may not be an isolated case. Govan Law Centre is currently dealing with another client sold the same mortgage. That has also been taken to the ombudsman, which again upheld the complaint against the bank.
There are likely to be other borrowers who took out the same first-time buyer product with the Clydesdale in 2008 and who could now be facing repossession, said Fraser.
“There may be other customers who are currently facing repossession proceedings because they have had this product and the term has now expired, with the full balance becoming due. These customers may be at risk of homelessness due to the repossession proceedings,” she said.
The Clydesdale has been in hot water with the ombudsman before over mortgage cases. It was fined £8.9m in 2013 and forced to pay nearly £33m in compensation to thousands of borrowers who were asked to cover shortfalls after the bank had miscalculated their monthly repayments.
Most of those who took their case to the FOS had their complaint upheld, with many securing significant compensation payouts.