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
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 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.
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 allegations advanced follow very similar allegations in other Pure Legal cases, with the crux being that an interest only mortgage should not be recommended if a capital repayment mortgage was affordable.
The judge dismissed the claim on the basis that it was statute barred by virtue of the Limitation Act 1980. In reaching his judgment, the judge made the following key findings likely to be relevant to other claims for negligent mortgage advice brought by Pure Legal:
- The judge characterised the allegation as one where the claimants alleged that their mortgage was unsuitable because there was no repayment vehicle or viable repayment strategy in place. Having identified the basis of the claim, the judge turned to consider what the relevant "damage" was and the "material facts" relevant to that damage.
- The damage was the fact that the claimants had entered into an unsuitable mortgage and it was allegedly unsuitable because there was no repayment vehicle or viable repayment strategy in place.
- The relevant material facts were (i) the mortgage was on an interest only basis; (ii) there was no repayment vehicle or viable repayment strategy in place; (iii) the capital sum would not reduce and, unless something changed, the Claimants would still be liable to pay the same in full at the end of the mortgage term.
- The Claimants knew at the outset each of these three material facts. The contemporaneous documents made that clear, in particular since the Claimants had signed those documents, indicating that they had read and understood them.
- Therefore, the Claimants knew enough right at the outset to question the advice they had been given and at least begin to investigate whether they had been misadvised by Ms Bristow. Section 14A did not apply at all in this case, since all relevant facts were patent from the outset when the Claimants entered the mortgage.
- In any event, the Claimants received correspondence from the lender, notably a letter in April 2010 enclosing the annual mortgage statement with standard advice indicating that the mortgage was on an interest only basis and showed that the capital was not reducing. By 2010 at the latest, the Claimants had at the very least constructive knowledge that (i) something had gone wrong (at least, as alleged), (ii) what had allegedly gone wrong was attributable to Ms Bristow’s advice; and (iii) their financial position was detrimental to them, by contrast with how they believed it would be.
The judge did not conduct a formal analysis on negligence but would have found that Ms Bristow had not been negligent and would have dismissed the claim in any event. In reaching this conclusion the judge noted that the Claimants wished to take out an interest only mortgage to keep monthly payments to a minimum for the first two or three years to allow them to consolidate and pay off their unsecured debts and then to convert to a repayment mortgage for the remainder of the mortgage term. In view of these objectives, the judge concluded that Ms Bristow acted reasonably in recommending the interest only mortgage that she did.
In addition, the judge noted that, in light of the decision in the case of Ross v Attanta, the Claimants had abandoned the claim for the amount of capital that would have been paid under a repayment mortgage. This meant that the claim was at best limited to the difference in interest between an interest only mortgage and a capital repayment mortgage, which in this case was just £5,110.03. The judge remarked that claims companies and solicitors in these types of claim should take a realistic view of the value of the claim at the outset in order to avoid costs becoming disproportionate to the value of the claim.
Where does this leave the mortgage broker and PI insurance market?
The decision will come as welcome relief for mortgage brokers and the PI insurance market. In particular, in his judgment, the judge conducted a detailed analysis of the legal framework on limitation, considering the leading House of Lords case of Haward v Fawcetts, then finding that the claim was clearly statute-barred, since the Claimants had the relevant "knowledge" for limitation purposes at the very outset, or at the latest upon receipt of correspondence from their lender.
Equally as important was the application of the High Court decision in Ross v Attanta as to the quantification of loss, with the judge finding that the Claimants could not claim for the capital sum in addition to the difference in interest on the different types of mortgage product. In fact, the Claimants abandoned that element of their claim on the final day of trial, in light of the Ross case.
Over the last 18 months or so, mortgage brokers and their PI insurers have been inundated with litigation, predominantly brought by Pure Legal. This decision now provides useful and crucial judicial commentary on these cases in particular with regard to limitation and loss. It also provides useful judicial support for the reasonableness of recommending an interest only mortgage where individuals have specific reasons to want to keep monthly payments as low as possible.
The fact that the judge roundly dismissed the argument that a claimant did not have knowledge for limitation purposes to bring such a claim until they were told that they could have afforded, and were otherwise eligible for, a capital repayment mortgage at the time of allegedly negligent advice is key. This part of the decision arguably drives a dagger to the heart of claims brought by Pure Legal.