Upheld: irresponsible lending - inadequate stress testing of existing mortgage complaint against TANDEM HOME LOANS LIMITED
Financial Ombudsman decision DRN-5970337 of 2026-04-29T00:00:00+00:00. irresponsible lending - inadequate stress testing of existing mortgage complaint against TANDEM HOME LOANS LIMITED. Outcome: Upheld.
Decision detail
| Reference | DRN-5970337 |
|---|---|
| Decision date | 2026-04-29T00:00:00+00:00 |
| Firm | TANDEM HOME LOANS LIMITED |
| Product | Mortgage |
| Claim type | irresponsible lending - inadequate stress testing of existing mortgage |
| Outcome | Upheld |
| Remedy | Tandem must remove all fees and interest added to the loan balance (including broker fee of £3,135, acceptance fee of £1,295, and all interest charged). All payments made by Ms D and Mr G should be treated as reducing the capital balance. Tandem must calculate the difference between the actual redemption amount paid and what would have been paid with fees and interest removed, and refund this difference plus simple annual interest of 8% from the redemption date (May 2025) to the date of refund. Tandem may deduct income tax from the 8% interest element as required by HMRC and must inform Ms D and Mr G of any deduction. |
Summary
Ms D and Mr G complained that Tandem irresponsibly lent them a £28,500 second charge secured loan in early 2020 to consolidate unsecured debts. The loan had a 14% fixed rate for five years with monthly payments of £409.59 over 20 years. Tandem's affordability assessment left them with only 54p to £10.84 monthly disposable income after stress testing their first charge mortgage. The ombudsman found Tandem breached FCA mortgage regulation by stress testing the first charge mortgage using the current fixed rate (1.95%) plus 3%, rather than the reversion rate that would apply when the fixed rate ended in mid-2021. Using the correct reversion rate (above 4%) plus the FPC-recommended 3% stress test would have shown the loan was unaffordable. The complaint was upheld and Tandem was ordered to refund all interest and fees, treating all payments as capital reduction, plus 8% simple annual interest from the May 2025 redemption date.
The Ombudsman's reasoning
The ombudsman found that Tandem failed to comply with MCOB 11.6.18 R and 11.6.18A R by not properly stress testing the first charge mortgage. Tandem applied a 3% stress test to the current fixed rate of 1.95% rather than to the reversion rate that would apply when the fixed rate ended in mid-2021. The FPC's recommendation at the time was to use a stress test of 3% above the reversion rate. Mainstream lenders' standard variable rates were well above 4% in early 2020, so even using a conservative 4% reversion rate plus 3% stress test would have resulted in monthly mortgage payments exceeding £2,300 and negative free cash flow. Tandem provided no evidence of market expectations review or justification for departing from the FPC recommendation. The loan left Ms D and Mr G with minimal disposable income (54p-£10.84 per month) after stress testing, and their pre-application financial difficulties (missed payments, overdraft breaches) indicated financial instability, not stability as Tandem argued.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| TANDEM HOME LOANS LIMITED, all decisions | 3 | 67% |
| Mortgage, all decisions | 25,098 | 22% |
Source
Read the original decision on the Financial Ombudsman Service website