A financial adviser has been ordered to pay over £30k in compensation after recommending an interest-only mortgage to a client who intended to fund repayments through an investment in Harlequin, a high-risk unregulated property scheme.
The Financial Ombudsman Service (FOS) has ruled that Intrinsic Mortgage Planning Ltd’s advice was unsuitable, because its client Mr G was not “fully advised of the risks in repaying the mortgage, and the mortgage advice was unsuitable for his circumstances.”
Mr G met a representative of Intrinsic to arrange a mortgage to pay for a £30,000 deposit on a Harlequin investment and to clear his existing repayment mortgage. Mr G, who was aged 61 with an income of £23,500 was advised to apply for an interest-only mortgage of £71,000 over five years.
Harlequin was a property developer which promised investors ‘guaranteed returns’ of 10% a year from an unregulated overseas property scheme investing in luxury villas in the Caribbean and other locations. When Harlequin failed to build the promised properties, it is likely that Mr G lost his entire deposit. He also had no means to repay his mortgage.
Mr G complained to the ombudsman. Intrinsic said that it was not at fault as Mr G’s recorded repayment vehicle was an ISA and its documentation made it clear that he would still have a lump sum to repay at the end of his mortgage term. Intrinsic also pointed out that its adviser was not qualified to advise whether the Harlequin investment was a realistic repayment vehicle.
The FOS upheld Mr G’s complaint. Ombudsman Jo Storey accepted Intrinsic’s explanation that the adviser was only authorised to provide mortgage and protection advice. However, she concluded that the adviser “was put on notice as to Mr G’s particular circumstances and the nature of the Harlequin investment. I believe if the adviser had made Mr G aware of the risks, and if he’d appreciated those risks, he wouldn’t have taken out the additional borrowing on an interest-only basis.”
James Burgoyne, Director – Claims & Technical, Brunel Professions said, “Ultimately this case was not about whether Harlequin was an appropriate investment, but whether the mortgage advice was suitable. Advisers need to consider their client’s full circumstances when offering advice if they are not to put themselves at risk of future complaints.”
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