by Sue Anderson
I was asked recently by a national journalist to come up with some springtime 'reasons to be cheerful' in the mortgage market. In these days of economic gloom, that felt like a tough call. Yet, hidden like a rose among thorns, the ombudsman's data on mortgage complaints is a quiet reminder that all is not wrong with the mortgage market.
It's easy to get sidelined into believing that mortgage customers have much to complain about. There is a popular narrative of mis-selling, over-lending, self-certificated borrowing by borrowers with fairytale incomes, and interest-only loans whose repayment is predicated on a hope of inheritance upon Great Aunt Mildred's eventual demise. But real experience looks rather different.
Mortgages accounted for 3.5% of all new complaints to the ombudsman service in the 2010/11 financial year - amounting to just over 7,000 cases, with administrative errors representing the largest area of complaint. A 0% share of complaints would obviously be even better. But in the context of an industry with around 11 million active mortgage accounts, an annualised 'ombudsman referral rate' of 0.06% - or fewer than 1 in every 1,500 borrowers - doesn't look too bad. And when you consider that only 38% of complaints were resolved in favour of the consumer, the proportion of justified complaints looks lower still.
None of that means that lenders can afford to take their eye off the ball - especially in the current environment, where consumer trust and confidence in retail financial institutions is not exactly brimming over. It is more important than it has ever been for lenders to put right wrongs where they do occur.
But it's also important to recognise that lenders need to be able to refine and change their practices without being deemed to concede that previous practice, suitable in the past but no longer regarded as optimum now, was somehow deficient. This is particularly important in a landscape that to some extent encourages 'give-it-a-go' complaints from consumers who have no real gripe, but nothing to lose by complaining.
Businesses in many sectors (and the mortgage sector is not immune) worry about being vulnerable to the opportunistic antics of some less-than-scrupulous claims-management companies - which have the potential to be a frustrating distraction not only for businesses but also for the ombudsman service itself.
It would be nice, just occasionally, if commentators and journalists could join the dots between the urban myth of the universally exploited mortgage borrower and the evidence of an industry that tries to do the right thing by its customers - and by and large manages to do so pretty well most of the time, with the Financial Ombudsman Service as a helpful backstop to ensure the system works.
I've chosen my first case study from the ombudsman news archive as just one example of a complaint where everyone can have some sympathy for the borrower - but also for the lender.
The case study relates to a couple who wanted to refinance their existing mortgage with their existing lender into a new tracker rate. When they tried to do so, they were quoted a higher interest rate than they were expecting - due to the fact that the loan-to-value ratio, based on the lender's valuation, was higher than they had expected. They felt that the lender should refund their application fee, but the ombudsman did not uphold the complaint.
Valuations are a classic example of a situation where the 'right' value will be different in different market conditions and at different times, and it is hardly surprising that consumers are disappointed when a valuation does not match their expectations.
Equally, the fact that the value is lower than the borrower would like is not actually the fault of the lender - and it is enlightening to note that the ombudsman takes the same view. It is reassuring to see that there have to be errors, rather than simply misfortunes, for the lender to be found at fault on valuation-related complaints.
81/11 - consumers complain that the lender based its mortgage interest-rate offer on an inaccurate valuation of their property
The next case study I've chosen was upheld by the ombudsman - and involved an incident where the borrowers wanted to redeem their mortgage but were subject to an early redemption charge. Because the lender could not produce a copy of the offer - and asked the ombudsman to rely on the documents that 'would have been given' rather than those it could actually evidence as having been given - the case against the lender was upheld.
I think this case, even though it is a decade old, illustrates the ongoing problems that arise from poor record-keeping. It happens to be a mortgage case, but really it could be any number of financial services products that trigger the same concern. Mortgages that have been held for a long period are probably particularly vulnerable, simply by virtue of their longevity, although this case does not relate to a particularly long-standing customer.
6/1 - the signature and retention of mortgage offers
Cases like this one leave me with mixed feelings. On the one hand, good record-keeping seems to be a simple enough expectation, and means that subsequent disputes can be judged appropriately. How difficult can it be to keep good records?
On the other hand, in these days of merger, acquisition, de-merger, divestment, broker channels versus direct - with different record-keeping required by the various parties, and the rest of it - I do have a certain degree of sympathy for the possibility of cases occurring where the trail of 'what would have happened' is entirely clear, even if the specific customer record is not.
And as a complete aside, when it comes to transparency and record-keeping, I have always failed to understand why the requirement under the old Mortgage Code - for mortgage customers to receive a letter confirming whether or not they had been given advice, and what the reasons were for any product recommendation - was not translated into statutory mortgage regulation when the FSA took this over in 2004. Sometimes we seem to go backwards as we move forwards!
My final choice relates to pet insurance. What does this have to do with mortgages, you may well ask? Absolutely nothing, I would have to concede.
I wanted to include a pet-insurance story partly because they're a cracking read. The cockatiels, Rosie and Jim, with their sore skin; Mrs F's arthritic dog, Herbie; Acorn the horse with colic; Jasper the beagle with his dislocated kneecaps; and my own special favourite, Ruby, the dog with her hydrotherapy regime - they're all painted clear as day in my mind's eye.
65/3 - pet insurer refuses to meet hydrotherapy claim because treatment not carried out by a vet or registered member of a relevant association
More importantly, however, I think these pet-insurance cases illustrate the spread of different products and issues - some of which seem far, far removed from our own parochial concerns - on which the ombudsman service is required to take a view, and to adjudicate on the basis of full and fair consideration.
It's all too easy, working in one particular sector, to fix only on those aspects that relate to one's own neck of the woods. But as the pet-insurance stories remind me, the ombudsman net is spread far and wide.
And the ombudsman service does a good job in making sure that all sorts of complaints about financial products - from the life-changing to the fairly modest - get a fair review, from the perspective of both the consumer and the product provider. Long may that continue.