Mortgage underfunding
Do you work for a mortgage lender or broker – or another organisation – dealing with complaints from customers who find they haven’t been paying enough to cover their mortgage?
This page will give you an overview of the complaints we can help with and how we approach them.
Mortgage underfunding is not the same as a mortgage shortfall or the issues we see with interest-only mortgages.
On this page
Do you have a mortgage complaint?
Complaints we deal with
Mortgage underfunding happens when a customer hasn’t been paying enough to cover their mortgage – usually without realising.
In most cases, it's a result of mistakes made when the mortgage payments were set up or calculated. This could be the fault of:
- the broker
- the lender
- the customer setting up a standing order for the wrong amount.
Rules on mortgage underfunding
When we look at complaints about mortgage underfunding, we use the regulatory and legal standards that applied at the time the consumer is complaining about.
The Mortgages and Home Finance: Conduct of Business (MCOB) sourcebook sets out how mortgage lenders should provide services to borrowers, covering regulated:
- mortgage contracts – including first and second charge mortgages and bridging loans
- equity release products
- home purchase plans, and
- sale and rent back agreements
Handling mortgage underfunding complaints before they come to us
Good complaint handling can repair a relationship, help build trust and confidence in financial services, and give customers a better understanding of your financial products.
We'd expect your complaint handling teams to fully understand:
- all the relevant rules and regulations, including the requirements of the Consumer Duty
- what to send us when we're dealing with a complaint about your firm.
Our decisions database holds all the final decisions we’ve published since 1 April 2013. They're anonymised to protect the identity of complainants but are based on real-life complaints, so will give you a good picture of how we resolve disputes.
Our complaints data will give you an idea of the volume of complaints we receive and resolve, and the proportion that we have upheld in consumers’ favour.
How we resolve mortgage underfunding complaints
We only look at complaints you've had an opportunity to look into first. If the consumer is unhappy with your decision, or you don't respond to them within the time limits, they can come to us.
In mortgage underfunding cases, we always start by finding out who made the mistake that led to the problem – the lender, the broker or the customer.
Each case is different, so what we require will vary. But we’ll look at the facts and evidence from both you and your customer. We’ll usually consider:
- relevant laws and regulations
- regulators’ rules in place when the event happened, including the Consumer Duty
- guidance, standards and codes of practice in place at the time of the event
- the information you gave your customer about their mortgage repayments and whether it was clear enough
- why the customer wasn’t paying enough
- whether your customer knew they weren’t paying enough
- whether your customer could have reported the problem sooner
- when you realised a problem, and the action you took when you realised
- how you acted when the problem was reported, even if your customer was at fault, and
- in cases where your customer’s at fault, whether you worked with them to set up a reasonable repayment plan
We follow the FCA’s dispute resolution rules (DISP) and will take into account how you’ve tried to put things right. We’ll also consider whether the sale was by a 'tied' representative of a product provider, or an independent financial adviser.
If we uphold the complaint, we'll tell you what you need to do to put things right. For example, if you’re the:
- broker, we might tell you make up the money that should have been paid
- lender, we might tell you to change the customer’s account balance to what it would have been if the payments had been correct
This could mean writing off the extra money. But if your customer didn’t realise they were paying too little each month, making up the full amount might put them into financial difficulty.
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If your customer knew they were underpaying, and didn’t tell you straight away, we'd expect you to, either:
- pay the underfunding up to the point the customer realised about the mistake, or
- pay the underfunding to the point the customer should have realised.
Sometimes, customers are aware that their lender has made a mistake and carry on paying the wrong amount. In these cases, we’re likely to say it’s fair for the customer to then pay the outstanding amount. But we'd expect you to work with them to arrange a fair way to pay it.
We may also ask you to compensate them for any distress or inconvenience they’ve experienced as a result of the problem.
Case studies
The lender makes a mistake, but the customer realises
Mortgages
The customer doesn't realise the quote given by the lender is wrong
Mortgages
Business Support Hub
Businesses and consumer advisers can contact our Business Support Hub on 020 7964 1400 for information on how we might look at a particular complaint, or for guidance on our rules and how we work.
We also work with businesses and other organisations to help prevent complaints.
