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Complaints over two-year fixed rate mortgages on the rise

Nick Cheek
Written By:
Nick Cheek

Customer complaints to brokers about recommendations for two-year fixed rates over a longer fixed rates are spiking, according to one complaints management company.

According to Cardiff-based Jencap Partners, a complaints management firm, it has seen an increase in enquiries from brokers where customers have taken out a two-year fixed rate over a longer-term fixed rate as they could be more exposed to higher interest rates.

John Bull, managing director of Jencap Partners, said that the “number of mortgage complaints and claims will inevitably increase, regardless of whether they have any merit”.

He added that this could mean that there could be a “more concerted campaign” from large claims companies targeting brokers.

Brokers give advice, not decisions

While borrowers are, of course, at liberty to complain about the mortgage they took out, brokers have noted that they are there to advise to the best of their ability but it is the customer who makes that final decision.

Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management, said that it was not a surprise that people were “wanting to blame their broker”.

“However, we can only advise on the information we are given, part of which includes future plans, whether they are planning on upsizing, downsizing, having children or expanding their portfolio. Any broker worth their salt would always give all options available to the client, including a two and five-year fixed rate, but ultimately the choice is with the client,” she added.

Eatenton continued that two years ago two-year fixed rates were cheaper than five-year fixed rates so customers may have “chosen cost over long-term suitability”.

Justin Moy, managing director at EHF Mortgages, agreed, noting that reasons for a product recommendation would be “clearly shown in the mortgage adviser’s recommendation report”, so if it was due to price, features or future plans then there would be a “clear reason” why the product was chosen.

“This approach should stop the vast majority of mortgage borrowers looking to chase compensation. And if the borrower arranged their own product transfer directly with their own lender a few years ago, there is no recourse either, as that would have been without advice.

“This is even more reason to engage with a professional adviser, even if you think a new deal is straightforward to organise,” he noted.

Customers should consider options carefully

One broker noted that, given the current economic climate, most were recommending five-year deals in the first place.

Samuel Gee, director at Manning Gee Investments Limited, said that if a two-year fixed rate was recommended at the time, and it was the right advice for the borrower, then a complaint is “unlikely to be upheld”.

However, he said that it was important to consider why a broker would suggest a two-year deal during a period of “historically ultra-low interest rates”, when a five-year deal could have been more suitable for a borrower with no plans to move or pay off their mortgage in that time frame.

He said: “As a responsible broker, I always advise my clients to consider their options carefully and only recommend a two-year deal if it is truly the best option for them.

“In fact, the majority of the deals I have arranged over the past few years have been five-year fixed rates, which were completely appropriate for the clients’ needs. When a five-year deal was not the best option, we explored other alternatives together,” he explained.

Some claims may be valid

However, despite the likelihood of most complaints being rejected, some mortgage insiders highlighted that customers could have a case. For example, if a broker had made ‘bold claims’ or failed to provide accurate advice ‘tailored’ to their specific needs.

Scott Taylor Barr, financial adviser at Carl Summers Financial Services, said that notes and documents around the advice would be key, but noted some advisers on social media make “bold claims”, such as all clients should be on trackers, which could lead to complaints.

He said: “It is also possible that a very small number of the claims may be valid if a particularly bullish adviser failed to actually provide tailored advice to the client and simply “sold them” what he or she thought was best at that time.

“Either way, I can’t see this being the same tsunami of claims as we saw with PPI, as the vast majority of cases will be correctly advised via a professional and the client got exactly the right product at that time, for their needs.”