Broker banned for recommending interest only mortgages
The Financial Services Authority (FSA) has publicly censured Principal Mortgage Services Limited (PMSL), a mortgage brokerage based in Worcester, for failing to give suitable advice in relation to interest only mortgages.
Terence Harrop, the firm's director, has also been banned from working in regulated financial services.
PMSL recommended its customers take out an interest only mortgage with an accelerator product called the Flexible Repayment Plan (FRP). Customers made capital repayments on their interest only mortgages which were collected and held in an account operated by PMSL's sister company, Flexible Repayment Limited (FRL), and transferred to the customer's lender annually.
Around 738 customers were persuaded by PMSL to take out interest only mortgages with the FRP between October 2004 and November 2010. Most customers would have been better off with a straightforward repayment mortgage and could have achieved the same benefits directly from the lender, without incurring the fees and charges associated with the FRP.
Harrop did not cooperate fully with the FSA and also failed to ensure customers' money in the FRP was adequately protected. When the firm went into liquidation, along with FRL, customers lost around 45% of their money held in the FRP, amounting to several hundred pounds for some customers.
If the firm was not in liquidation the FSA would have imposed a financial penalty.
Tom Spender, the FSA's head of retail enforcement, commented: "When making an advised sale it is imperative that you consider carefully whether the product you are recommending is suitable for the customer.
“Illustrations comparing the features of two or more products need to be clear and fair, and must not mislead the customer to believe one product is cheaper or better than the other, where this is not the case.
“Harrop recommended a mortgage arrangement without objectively assessing whether this arrangement was in the best interests of customers, and without making clear the limitations and cost of the arrangement. This is not good enough and he has been sanctioned appropriately."