Partially upheld: Mortgage administration / arrears handling complaint against Prudential Lifetime Mortgages Limited

Decision detail

Summary

Mr and Mrs L complained that Prudential Lifetime Mortgages Limited applied an excessive early repayment charge (ERC) of £175,000 when they repaid their lifetime mortgage in 2020. The mortgage, taken out in 2008 for £700,000 at 6.68% fixed interest, included an ERC mechanism based on BoE base rate changes, remaining term, and mortgage balance. When Mr and Mrs L enquired about downsizing in 2020, Prudential provided an illustration showing they could transfer at 64% loan-to-value but failed to inform them they could transfer at 35% loan-to-value without triggering an ERC, as permitted by the original mortgage offer. The ombudsman found that while the ERC terms were clear and the calculation method reasonable, Prudential acted unfairly by not providing complete information about available options. The ombudsman partially upheld the complaint, awarding £70,000 for financial loss, £1,000 for distress and inconvenience, and requiring an apology, while finding the ERC itself was not unfair.

The Ombudsman's reasoning

The ombudsman found that while the ERC terms were clearly stated and the calculation method was reasonable (using BoE base rate as a proxy for Prudential's cost of funds, remaining term, and mortgage balance), Prudential acted unfairly by failing to inform Mr and Mrs L of their right to transfer the mortgage at 35% loan-to-value without triggering an ERC. The ombudsman accepted that the unprecedented fall in interest rates since 2008 explained the high ERC amount but did not make it unfair. However, Prudential's failure to provide complete information prevented Mr and Mrs L from making a fully informed decision. The ombudsman could not definitively establish that Mr and Mrs L would have chosen differently had they been properly informed, given market conditions and their circumstances, but found it fair to compensate them for the financial loss and distress caused by Prudential's unfair administration of the mortgage terms.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website