Fair Compensation: Financial misselling decision heard

The Administrative Court has recently made a decision in what is an important financial misselling case.

The case of Charmaine Emptage v. Financial Services Compensation Scheme Ltd [2012] EWHC 2708 (Admin) relates to the remortgage of an English property so that the mortgagor could purchase an investment property in Spain.

The English property was subject to a repayment mortgage with £39,633.00 outstanding. Seeking advice from a mortgage broker the mortgagor was advised to remortgage the English property on an interest-only basis for £110,000.00, with the suggestion that the mortgagor invest the balance by acquiring a property in Spain which would provide an income, discharge the outstanding mortgage and give her additional funds.

The mortgagor followed the advice given by the mortgage broker, which was later found to be negligent.

The Spanish property market later collapsed and the mortgagor was in no position to repay the outstanding mortgage, which had been increased by almost £70,000.00. To compound matters the mortgage broker was without professional indemnity insurance and also insolvent. While the Financial Services Compensation Scheme (FSCS) conceded that the mortgage broker’s advice was negligent, a compensation claim was initially rejected. The decision was later reconsidered and compensation of £11,522.00 awarded.

The mortgagor challenged the compensation, but this was rejected as the FSCS stated they could only compensate for losses directly attributable to the unsuitable regulated mortgage contract recommended and not for losses which arose due to the purchase of the property in Spain.

It is appeared that the FSCS was not just excluding part of the mortgagor’s claim, they were effectively ignoring the entirety of the claim itself and failing to restore the mortgagor to her previous financial position, had it not been for the negligent advice.

The decision has now been quashed and the FSCS has been ordered to reconsider the question of compensation.

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