Not upheld: Mortgage administration / arrears handling complaint against Saffron Building Society

Decision detail

Summary

P, a limited company, complained to Saffron Building Society about two matters: first, that it was misled about the interest rate in a commercial mortgage, and second, that Saffron acted unreasonably by delaying approval of a replacement contractor and withholding further mortgage drawdowns. The Heads of Terms issued in March 2021 stated an 8.5% interest rate without specifying whether it was fixed or variable, but was explicitly marked as indicative only. The formal mortgage offer in September 2021 clearly stated the rate was variable. The ombudsman found no misleading conduct, as commercial borrowers are expected to seek clarification on ambiguous terms. Regarding the contractor issue, after the original contractor became insolvent in late 2022, Saffron required due diligence and proper contractual documentation before approving the replacement contractor and releasing further drawdowns, which the ombudsman found reasonable given the high LTV (over 90%) and the replacement contractor's status as a new business. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found that Saffron was upfront about the HOT being indicative only and not a formal offer. For a commercial mortgage (not typically FCA-regulated), it was reasonable to expect P's directors to ask clarifying questions about whether the interest rate was fixed or variable, and to negotiate terms if they had concerns. The mortgage offer clearly stated the variable rate terms, which P accepted. Regarding the contractor issue, Saffron's requirement for due diligence and proper contractual documentation before releasing further drawdowns was in line with the mortgage offer terms and was reasonable given the replacement contractor was a new business and the high LTV position. Personal guarantees are not typically factored into LTV calculations as they only apply if the project fails and there is a shortfall after security is realised.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website