Second load of loan complaints as more customers turn to loans to consolidate debt – FOS

New complaints about unaffordable loans in second charge repayment loans increased by 8% between 2021 and 2022, the Financial Ombudsman Service (FOS) has found.

In its annual complaints data, FOS said wAlthough it handled fewer cases of historically unaffordable loans than in previous years, it received an increased number of complaints about unaffordable loans linked to second charge repayment loans.

This type of loan secured against a property, usually with a higher interest rate, is provided by a different lender than the main mortgage provider.

The FOS said that between April 2021 and March 2022, it had seen more examples of consumer vulnerability, indebtedness and late payment for a product they could never have afforded, some loans bearing an interest rate of 35%.

The ombudsman said that because second-lien loans are often taken out to consolidate other debts, customers could potentially be more vulnerable.

A spokesperson said: “The interest rate is so high that even in cases where the consumer recovers and is able to make payments for arrears alongside their monthly payment, their loan continues to grow or never diminishes.

“Consumers who take out second lien loans may do so out of desperation because they have other debts that they are struggling to repay. And, putting all of that into the second charge loan with a lower monthly payment might seem like a good idea at the time. But, concerns arise about the initial advice and/or loan decision, when it is clear that the long-term loan is not viable. Often the debts that were consolidated were unsecured, but now that they are secured on their home, there is a real risk that they will lose it.

The spokesman added that the FOS had been able to help in several cases where tens of thousands of pounds of loans had been written off, or where the lender had granted a much more suitable forbearance, which had an impact positive for consumers. .

Residential mortgages see over 7,000 new complaints

The latest annual data from the FOS showed that 7,649 of new complaints were from residential mortgages. The top three categories of complaints in the industry were first repayment loans at 4,866, first interest only charges with no repayment vehicle with 994 new cases, and second repayment cases at 606.

After residential mortgages, the highest number of new complaints were for rental mortgages with 718 and capital release products with 475.

The overall retention rate for mortgage complaints was 25%, compared to 21% the previous year.

Customer service complaints accounted for over 35,000 of the total complaints handled by FOS.

The issues ranged from the inability of companies and their customers to come up with a solution to fix a problem, to the companies’ lack of care and attention to detail, which could have prevented complaints from escalating earlier.

The FOS said it would continue to work closely with the Financial Conduct Authority to ensure a coordinated approach to handling complaints about loans. He added that he already provides a range of resources to help lenders do this, including information his approach to resolving casesand a database of mediator decisions.

Nausicaa Delfas, Acting Chief Executive and Chief Ombudsman of the Financial Ombudsman Service, said: “Over the past year, FOS continued to help more than 200,000 clients who had problems with financial firms on issues related to banking, loans, insurance and investments. In these times of economic uncertainty, it is more important than ever that when problems arise, they are resolved quickly. We are here to help resolve financial disputes fairly and impartially. »

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