Not upheld: mortgage lending decision and service quality complaint against HSBC UK Bank Plc

Decision detail

Summary

Mr and Mrs D complained to HSBC about the decline of their mortgage application for further borrowing and a term extension when purchasing a new property, and about poor service during the application process. They received varying Decisions in Principle and felt the lending decision was unfair, particularly suggesting that if they had not extended their term they might have been approved. HSBC declined both the term extension application and the subsequent purchase application on affordability grounds and offered £250 compensation for service failures. The ombudsman found that HSBC properly required an affordability assessment given the material contractual changes, fairly assessed the applications, and that extending the term would not have improved affordability. While communication could have been better, the £250 compensation was appropriate and the Early Repayment Charge was validly applied.

The Ombudsman's reasoning

The ombudsman found that HSBC was entitled to require an affordability assessment given the material contractual changes (further borrowing and term extension into retirement). The underwriter's decline on affordability grounds was fair and reasonable. The varying DIP outcomes were explained by different methodologies (online vs advisor-generated, different terms used). While a lower interest rate might improve affordability, HSBC would apply a stress test using a higher rate regardless, so switching rates would unlikely have changed the outcome. The term extension application being declined before the purchase application was submitted meant the purchase application was assessed on the basis of the longer term Mr and Mrs D had requested, which made affordability worse. The ombudsman agreed that HSBC's service fell short in not communicating the term extension decline sooner, but this did not affect the fairness of the lending decision itself. The ERC was a contractual term that Mr and Mrs D agreed to and was properly applied.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website