Joe had been saving for a deposit for his first house and approached a mortgage adviser for some help in getting a home loan.
Joe’s adviser completed a fact-find with Joe to find out what his budget was and the price-range he was looking in. The adviser applied for a home loan for Joe and received pre-approval from a lender. Joe couldn’t find any suitable houses for the loan amount the lender had offered so he didn’t draw down the loan.
Joe continued looking for a house over the next year and his adviser continued making loan applications on Joe’s behalf. The loan applications were pre-approved, but the lenders were not offering to lend Joe enough money to purchase a suitable house – so Joe didn’t accept any of the offers.
Next, Joe approached a bank directly and received an offer for a loan that was $90,000 more than any loan offers his adviser had been able to obtain. Joe told his adviser he had received a good loan offer. Joe gave the adviser a chance to match the bank’s offer, and the adviser submitted a new loan application to a different lender.
Joe then made an offer on a house that was accepted. Joe contacted the adviser and told him that he had accepted the loan offer from the bank so he could purchase the house.
The adviser told Joe that because he had accepted the loan from the bank and not waited for him to try and get a matching offer, Joe would need to pay the adviser’s professional fee of $2,500 for his time.
Joe didn’t think it was fair that the adviser asked him to pay the fee, so he referred a complaint to FSCL.
Dispute
Joe didn’t think it was fair for the adviser to charge his fee because the adviser didn’t obtain any loan offers that were high enough for Joe to purchase a suitable house.
The adviser told Joe that he had put in a lot of work applying for loans on his behalf, and he didn’t think Joe gave him enough time to match the bank’s loan offer, so he believed it was fair to charge Joe the fee.
Review
We looked at the adviser’s ‘client authority form’ that Joe signed because this document formed the contract between Joe and the adviser.
The client authority form explained the circumstances under which Joe would be charged the professional fee.
We agreed with Joe and that this situation was not one where the adviser could charge the fee. The client authority form clearly said that the adviser wouldn’t charge the fee if he obtained a loan offer but Joe couldn’t find a suitable property – which is what happened here.
The client authority form did say that the adviser would charge his fee if he obtained a loan offer and Joe decided not to accept it, but went directly to a lender for a loan instead. Although Joe went directly to the bank, we didn’t think the adviser could charge the fee under this clause of the form because Joe couldn’t have purchased the property with the loan offer that the adviser had obtained – the loan offer that Joe accepted from the bank was $90,000 higher. We noted that if the offers were for the same amount and Joe chose to accept the bank’s offer, then the adviser would have been entitled to charge the fee.
We also thought that Joe had given the adviser ample time to arrange a suitable loan over the 15 months since Joe approached him, and that Joe was not obliged to wait any longer to see if the adviser could match the bank’s loan offer.
Resolution
Both Joe and the adviser accepted our view and the adviser stopped pursuing Joe for the fee.
Insights for participants
It is important for mortgage advisers to clearly set out in their client contract when they will charge the client a fee for their service.
Advisers need to make sure they have captured in the contract all of the circumstances that will result in them charging a client a fee – because it won’t be fair to charge the client for any circumstances that aren’t included in the contract.
The wording of the contract is something that advisers need to be mindful of, and it is always best practice to explain your fees to a client at the beginning of the relationship.
