Upheld: Irresponsible lending complaint against Shawbrook Bank Limited

Decision detail

Summary

Mr E, an unemployed man on disability benefits, obtained a £50,000 bridging loan from Shawbrook in November 2022 to renovate and sell his property. The loan was arranged by a broker and secured by first charge over his residential property. Shawbrook relied on an automated valuation of £125,000 and accepted a vague, uncosted schedule of works without obtaining the full physical valuation its own underwriting criteria required. Mr E transferred approximately £45,510 of the loan to cryptocurrency wallets within days, subsequently losing these funds to high-risk trading. When the loan term ended, Mr E had completed no works and could not repay. After Mr E's cancer diagnosis, Shawbrook extended the loan and suspended interest. Mr E passed away in April 2024, and the property sold for only £82,000 in December 2024. The ombudsman upheld the complaint, finding Shawbrook lent irresponsibly by failing to assess a credible repayment strategy and obtain proper valuation, but declined to refund capital due to insufficient evidence the funds were definitively lost. Shawbrook must refund all interest and charges with 8% interest plus £1,000 compensation for distress.

The Ombudsman's reasoning

Shawbrook was required to assess how the bridging loan would be repaid at the end of the term, ensuring a clearly understood and credible repayment strategy. The repayment strategy depended on Mr E completing renovation works and selling the property within 12 months. The schedule of works provided was vague, uncosted, and lacked contractor quotes or evidence of Mr E's ability to complete specialized work (such as gas installation). Shawbrook's own underwriting notes required a full valuation with the valuer reviewing the schedule of works, but Shawbrook failed to obtain this, instead relying on an automated valuation without physical inspection. The actual sale price of £82,000 (versus the £125,000 automated valuation) demonstrates the property was in poor condition and a physical inspection would have revealed this. The guidance in MCOB recommends independent valuations for bridging loans relying on property sale as repayment strategy. The loan-to-value ratio of 40% based on the inflated valuation was actually much higher based on the true value. The repayment strategy was not credible because: (1) the works were speculative and unlikely to be completed by Mr E within the timeframe; (2) there was no evidence the works would add sufficient value; (3) even if completed, the property would not generate enough equity for Mr E to purchase alternative accommodation (a barge) after repaying the loan. Shawbrook failed to act fairly and responsibly as required by MCOB 2.5A.1. Regarding capital refund: while Mr E1 provided evidence that funds were transferred to cryptocurrency wallets and subsequently withdrawn to unknown destinations, there is insufficient documentary evidence that the funds were definitively lost rather than remaining in unknown third-party accounts. Therefore, capital refund cannot be justified. However, compensation for distress is appropriate given Mr E faced worry about repayment and potential loss of his home while seriously ill with a terminal diagnosis.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website