Pure Legal Interest Only Mortgage Claim ' Judgment In Favour Of The Mortgage Broker On Limitation Grounds As Judge Finds The Damage Was Patent Not Latent

• Published date: 18 May 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Charges, Mortgages, Indemnities, Financial Services, Trials & Appeals & Compensation
• Law Firm: Reynolds Porter Chamberlain
• Author: Mr Anthony Cutler and Rachael Healey

The first judgment following trial in a Pure Legal interest only mortgage claim has now been handed down, with the judge dismissing the claim on the basis that it was out of time, with the claimants having all requisite knowledge of the material facts of the damage from the outset of taking out the interest only mortgage. The judge also found the advice was not negligent.

The Facts

The Claimants, Mr and Mrs Colborn, approached the Defendant mortgage broker's adviser, Ms Bristow, to provide them with advice concerning the purchase of a property. The advice in question took place in around March 2006, with the mortgage completing in June 2006. At the time of the advice, the Claimants were living in rented accommodation and had several unsecured debts.

On an Initial Enquiry Form, the Claimants indicated that they wanted an "interest only [mortgage] for the first three years to review to repayment", since they wanted to concentrate on paying off their debts in the first instance. It was important for the Claimants that they consolidated their debts into the mortgage and that the mortgage would be "interest only to convert to repayment after 3 years [when] other com[mitments] are cleared."

Ms Bristow provided the Claimants with standard documentation, including a Key Facts Illustration, a Mortgage Suitability Report and an application form. The Claimants signed the application and Mortgage Suitability Report, both of which reflected their needs and circumstances. The Claimants then accepted a mortgage offer from their lender and entered into the interest only mortgage.

After several years had passed, the Claimants had taken no steps to convert the mortgage into a capital repayment mortgage and were regularly in arrears on their repayments, resulting in possession proceedings being issued against them. The Claimants sold the property in 2018, redeeming the mortgage in full, and moved into rented property.

The Allegations

In essence the Claimants' case was that it was negligent of Ms Bristow to recommend an interest only mortgage without there being a repayment vehicle or viable repayment strategy in place, and that switching to a repayment mortgage and overpaying towards the capital were not viable repayment strategies. The Claimants sought damages of '41,138.85, comprising the difference in interest between an interest only mortgage and a capital repayment mortgage and the amount of capital that would have been paid off under a repayment mortgage.

The...