Anna and Tony were looking to purchase their first house. They contacted a mortgage broker to help them arrange finance. The mortgage broker obtained a pre-approval from the bank for a purchase up to $400,000.
On 25 June 2014 Anna and Tony signed an agreement for a house sale and purchase. The agreement’s finance condition had to be satisfied by 4 July 2014.
Sometime between 25 June 2014 and 4 July 2014 Anna and Tony met with the mortgage broker to discuss the intended terms of their loan. Following this meeting Anna and Tony met with their solicitor to review and sign the loan documents. Anna and Tony’s loan was for $352,625 on a 30 year term with a four year fixed term interest rate of 6.95% p.a.
In September 2015 Anna and Tony visited their bank and were surprised to hear their loan had a four year fixed term. They thought they had only fixed for two years.
Anna and Tony complained to their mortgage broker. The complaint was not resolved by the mortgage broker and Anna and Tony contacted FSCL.
Anna and Tony’s view
Anna and Tony believed the mortgage broker had negligently failed to follow their instructions to secure a two year fixed term. Anna and Tony were adamant they had asked for a two year fixed rate.
Anna and Tony wanted to be on the bank’s floating home loan rate from 24 July 2016. If this was not possible, they wanted the mortgage broker to compensate them for the difference between the remaining two years of their fixed term agreement and the bank’s floating interest rate from 24 July 2016.
The mortgage broker’s view
The mortgage broker said during his meeting with Anna and Tony he recalls discussing a two year fixed term. However, at the end of the meeting, Anna and Tony advised him they wanted a four year fixed interest rate rather than a two year fixed rate. The mortgage broker said Anna and Tony wanted to fix for four years for consistency of payments and the security of locking in a relatively low rate for an extended period of time.
Review
The mortgage broker was no longer working at the mortgage brokerage firm he had been with at the time he arranged Anna and Tony’s loan. This meant he no longer had access to the mortgage brokerage system and could not provide us with his email records or file notes for Anna and Tony’s loan.
Fortunately, Anna and Tony could provide us with their emails to and from the mortgage broker. While the email correspondence was lengthy, the loan terms were not referred to. We were unable to find any written evidence of Anna and Tony’s instructions to the mortgage broker.
It is our role to consider and appropriately weigh all evidence, and in this case we received conflicting evidence. In the absence of any independent or written evidence, we considered there was insufficient evidence to find, on the balance of probabilities, the mortgage broker had been negligent or had failed to follow instructions when arranging Anna and Tony’s loan.
Even if we had found the mortgage broker had been negligent, we would still need to be satisfied that this negligence was the direct cause of Anna and Tony’s financial loss.
The mortgage broker said his role is to organise and recommend mortgage products to clients. It is then up to the client to decide whether they implement his recommendation. In our view, Anna and Tony had the opportunity not to implement the mortgage broker’s recommendation for a four year fixed term interest rate if they thought it was not in their best interest.
Once the loan documents were prepared by the bank, Anna and Tony had seen their lawyer for independent legal advice on the nature and effect of the mortgage. At a minimum, before Anna and Tony signed the loan agreement, the lawyer should point out:
- the amount being borrowed
- the interest rate
- the length of any fixed interest rate term
- the repayments.
We suggested Anna and Tony take this matter up with their lawyer if the lawyer did not do this.
We sympathised with Anna and Tony’s position. However, we considered they had the opportunity to check the loan documents and to raise any concerns about the fixed term and the interest rates during their meeting with their lawyer.
Outcome
Anna and Tony were disappointed that they would need to continue to pay a higher rate of interest than their bank’s floating home loan interest rate. However, they accepted our decision and decided to discontinue their complaint.
Our insight
Buying a house is a big decision and there can be serious consequences if something goes wrong. Before you sign any loan agreement, ensure you have read and understood the agreement. If there is something you do not understand you need to tell your mortgage broker (or your bank/lawyer/finance company) what it is you do not understand and ask them to explain.
It is difficult to investigate complaints where there is little written or recorded evidence available. For meetings or telephone discussions it is sensible to keep your own record of what happened and your understanding. Following a meeting or telephone call, you may want to send an email confirming what was discussed and what was decided. This can also help prevent a misunderstanding.
For any adviser, it is important to always keep good notes.
