Mortgage lenders face legal action over loan 'scams' mortgage scams'

THE CONSUMERS' Association yesterday threatened to take legal action against some of Britain's top mortgage lenders unless they respond to charges of "ripping off" customers within the next month.

THE CONSUMERS' Association yesterday threatened to take legal action against some of Britain's top mortgage lenders unless they respond to charges of "ripping off" customers within the next month.

Launching a report into what it called the "Top 20 mortgage scams", the association named the Halifax, Abbey National and the Northern Rock as the "worst offenders" based on almost 1,000 complaints received from consumers. "Over the last five years we have reached a tough conclusion that this industry has a rip-off mentality. It will not change unless it is forced to," said Sheila McKechnie, director of the association. "We are not frightened about who we take on."

But lenders accused the association of producing a report that is poorly researched and based on flimsy evidence. Criticisms were far from a representative sample of the 11 million mortgages currently in force, they said. They also pointed out that many of the practices described as "scams" referred either to policies, such as extended redemption penalties, which are any way disappearing as a result of competitive pressures, or the sale of endowment mortgages where the issues are not as clear cut as the associationmaintains. Tim Harrison, a spokesman for Abbey National, which was listed as the second worst offender, said: "The order of the names listed almost exactly matches market share." David Sheridan, ofNatWest, which is sixth in terms of market share and labelled the sixth worst offender, said: "The sample size they used is too small to have any real significance and certainly too small to label people as worst offenders or their sales practices as 'scams'."

Others in the industry said many of the issues raised by the association were valid, particularly when it says that few ordinary home buyers understand the complexities of the contracts they are signing. But they said these sensible points had been undermined by basingclaims of widespread mis-selling on "shoddy, headline-grabbing" research.

Among the practices which Ms McKechnie criticised are: tying lenders to variable interest rates which are set at the lenders' discretion; and delaying the passing on of base-rate cuts in order to make quick profits at borrowers' expense. The association also complained about cowboy mortgage intermediary firms who charge unsuspecting customers "arrangement fees" of several hundred pounds for fixing a loan that never materialises. Under the current legislation, anyone can set themselves up as a mortgage broker.

One insider, who has been in the business for 30 years, yesterday told of an example of a bus driver who was advised by an unscrupulous broker to pose as a self-employed gardener and get an accountant to falsify his income. This would then qualify him for a loan which he could not afford to repay.

Sue Anderson, of the Council of Mortgage Lenders, the industry's main lobby group, said that it is not the case that lenders are pushing endowment-linked mortgages at the expense of repayment mortgages: "The accusation of mis-selling is one that the Consumers' Association commonly makes.

"In fact, the proportion of endowment policies being sold has fallen sharply since the 1980s. The Consumers' Association seems to believe that endowment policies are not suitable for anybody. But in some cases they are the best option."