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Financial Services Compensation Scheme - Io Mortgage


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In Emptage v Financial Services Compensation Scheme, Ms Emptage and her partner had sought advice from a mortgage broker in 2005 as to how they could reduce the balance of their mortgage and the number of years it had left to run. They owned a property with a repayment mortgage balance of £40,000 and 10 years left to run.

On the advice of the broker, Ms Emptgage remortgaged her property for £110,000 on an interest only basis and invested the £70,000 surplus in a property investment in Spain. It was planned that the Spanish investment would produce a return that would pay off the entirety of the increased mortgage liability.

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If the judgment is not appealed then this has a significant impact upon the levels of future compensation payments (and of course, the levies that firms must pay to fund such compensation).

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Wow.

Anyone who believes that the best way to pay off a small mortgage debt which is over halfway through it's term is to go ahead and increase the debt and take on another liability needs their lumps felt. Seriously. At this rate I fear we will start seeing FSA posters outside the bookies offering miss-selling compensation if 'Dancing with Rain' didn't get first through the post in the 3.15 at Epsom.

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Wow.

Anyone who believes that the best way to pay off a small mortgage debt which is over halfway through it's term is to go ahead and increase the debt and take on another liability needs their lumps felt. Seriously. At this rate I fear we will start seeing FSA posters outside the bookies offering miss-selling compensation if 'Dancing with Rain' didn't get first through the post in the 3.15 at Epsom.

This case is about INVESTMENT advice..

the broker linked the mew mortgage to the Spanish Property.. the whole premise of the large mortgage being paid off was that the Spanish Investment, which the IO mortgage was required for, made the required return.

It didnt and this possibility was not explained to the client, and no records kept. the Broker went bust.

The case revolves on poor investment advice that did not meet the aims of the enquiry.

The type of mortgage is irrelevent...could have been a repayment.

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Looks tricky, but this is just to do with how much compo the FSCS stumps up.

The broker went bust, and if he'd had proper insurance cover she would have recovered enough to restore her to her original position because it was accepted the advice was professionally negligent. Look at it - she went to this joker to reduce her mortgage liability and term, and walked out of his office with speculative leverage.

FSCS says their compensation deals only with mortgage advice (regulated) and not with the property investment advice (unregulated).

High Court says, No - it's all part of a package, regulated and unregulated. Pay up.

If the FSA is going to licence professionals like this without proper insurance cover, then the FSCS should foot the entire bill. Otherwise get rid of the FSA and let people make their own judgments.

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Looks tricky, but this is just to do with how much compo the FSCS stumps up.

The broker went bust, and if he'd had proper insurance cover she would have recovered enough to restore her to her original position because it was accepted the advice was professionally negligent. Look at it - she went to this joker to reduce her mortgage liability and term, and walked out of his office with speculative leverage.

FSCS says their compensation deals only with mortgage advice (regulated) and not with the property investment advice (unregulated).

High Court says, No - it's all part of a package, regulated and unregulated. Pay up.

If the FSA is going to licence unprofessionals like this without proper insurance cover, then the FSCS should foot the entire bill. Otherwise get rid of the FSA and let people make their own judgments.

Sorry, just had to apply a slight amendment. Professionals should behave to a higher standard.

Edited by mfs1959
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Looks tricky, but this is just to do with how much compo the FSCS stumps up.

The broker went bust, and if he'd had proper insurance cover she would have recovered enough to restore her to her original position because it was accepted the advice was professionally negligent. Look at it - she went to this joker to reduce her mortgage liability and term, and walked out of his office with speculative leverage.

FSCS says their compensation deals only with mortgage advice (regulated) and not with the property investment advice (unregulated).

High Court says, No - it's all part of a package, regulated and unregulated. Pay up.

If the FSA is going to licence professionals like this without proper insurance cover, then the FSCS should foot the entire bill. Otherwise get rid of the FSA and let people make their own judgments.

She gambled on Spanish property, and lost.She KNEW that she was gambling.

Why should FSCS and that broker have any responsibility for the state of Spanish housing market and economy?:ph34r:

Compensation culture takes new highs.Another strange statement is that the value of Spanish property went down to "zero".:blink:

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She gambled on Spanish property, and lost.She KNEW that she was gambling.

Why should FSCS and that broker have any responsibility for the state of Spanish housing market and economy?:ph34r:

Compensation culture takes new highs.Another strange statement is that the value of Spanish property went down to "zero".:blink:

The guy held himself out as a professional and gave bad advice. End of story.

The real question is whether the state should be funding a compensation scheme for the losses.

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The guy held himself out as a professional and gave bad advice. End of story.

The real question is whether the state should be funding a compensation scheme for the losses.

On the other hand if the Spanish property kept it's value or increased it's value, then it would not be the "bad" broker's advice.

In such case, she would not have suffered a loss,and thus no compensation claim.

Surely she was gambling,she KNEW it, and she lost.

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The guy held himself out as a professional and gave bad advice. End of story.

The real question is whether the state should be funding a compensation scheme for the losses.

He did then went bust.

The state doesnt pay for the FSCS...members do.

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On the other hand if the Spanish property kept it's value or increased it's value, then it would not be the "bad" broker's advice.

In such case, she would not have suffered a loss,and thus no compensation claim.

Surely she was gambling,she KNEW it, and she lost.

Its been upheld twice now...that she went in to reduce her mortgage, and the broker came up with this scheme to do just that...a leveraged investment wholly dependent on the performance of the investment to acheive the aims...

The Broker would or should have records of the advice including the client risk aversion questionaire along with her aims and ambitions.

We dont have all the facts, but it was upheld the advice was bad and whereas before she just had a mortgage which she wanted to pay down quickly, she ended up without that mortgage, a new one secured on two properties, and the whole only affordable at all if the Spanish property performed.

Clearly high risk...

Whether she knew about all this before hand, we shall never know.

But it wasnt just a case of taking an IO mortgage for investment purposes, like BTL for example....

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Until it runs out of money. That the state do. Which will happen after about 20 claims.

Just like the PPF.

im sure you are right, but there is up to £4.1bn per year in total claims limit last time I looked...

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im sure you are right, but there is up to £4.1bn per year in total claims limit last time I looked...

How much of that is backed up by cash and what happens when they hit the limit... sorry sir we've hit the limit, your claim can't be paid?

I can assure you, most of the £4.1bn with be taxpayers cash, and the limit will be raised before it is hit.

Edited by RufflesTheGuineaPig
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How much of that is backed up by cash and what happens when they hit the limit... sorry sir we've hit the limit, your claim can't be paid?

banks and IFAs and other members pay into the scheme annually.

In the event of a major claim, the pain is spread among members.

And yes, in theory, the limits are the end of the story...you know, 85K? for any one organisation that fails to pay you...cant remember the latest limits so my figures my be a bit off.

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banks and IFAs and other members pay into the scheme annually.

In the event of a major claim, the pain is spread among members.

And yes, in theory, the limits are the end of the story...you know, 85K? for any one organisation that fails to pay you...cant remember the latest limits so my figures my be a bit off.

But the point of the story is that FSCS systematically limits pay outs, and the courts said Nuh Uh. If this catches on the state has to step in.

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But the point of the story is that FSCS systematically limits pay outs, and the courts said Nuh Uh. If this catches on the state has to step in.

no the payout in this case...the scope of the payout..

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