Insurance Day 9th April 2008

BRITAIN’S sub-prime mortgage borrowers at risk of repossession are to seek financial redress via mortgage brokers’ professional indemnity policies (PI).

Borrowers who lost sizeable deposits and incurred heavy bank debt after being sold "aggressive" mortgage loans will round on mortgage brokers principally linked to their woes.

PI brokers told Insurance Day recent regulatory reforms have left mortgage brokers exposed to claims filed through the Financial Ombudsman Service (FOS).

One expert said a wave of claims is "widely expected" and that mortgage brokers are "touching the iceberg". The Citizens Advice Bureau and the FOS have both noted a rapid surge in complaints made against mortgage brokers last year.

Martin Archer, claims director at Collegiate, said PI rates are hardening rapidly amid fears that the FOS will back consumers in deteriorating market conditions. Archer said: "In the last property recession we saw claims going against the accountants but not significantly against mortgage brokers.

"Mortgage brokers are regulated now. Also, in terms of the ease with which consumers can claim compensation, there are no barriers to entry such as legal fees. Brokers will ultimately have to advise the consumer of the FOS’s free service to resolve claims."

"Claims that would not have been experienced in the last recession will become commonplace now," he said.

Archer pointed out that banks may align themselves with consumers on this issue, further fuelling the claims trend in an effort to get back mortgage loans.

Restitution under FOS may clear mortgage-related bank debt. "There could be a situation where banks themselves may encourage customers to complain to mortgage brokers, hopeful of full repayment of the customers mortgage debt through the financial ombudsman service," Archer explained. "This is not as far-fetched as it may seem now."

Meanwhile, the FOS has spurred unrest after releasing complaints figures against mortgage brokers last year.

Tony Boorman, decisions director and principal ombudsman, told Britain’s Council of Mortgage Lenders: "First, the volume of [mortgage] cases has increased markedly - up some 50% on last year [2006-07] when we received 4,366 mortgage cases [and that was an increase on the previous year]."