Pure Legal enters administration – what does this mean for interest only mortgage complaints?
21 December 2021
The purpose of this document is to provide an update on the issue of interest only mortgage complaints. As many will have heard, the main company handling these types of complaints, Pure Legal, was placed into Administration by an Order of the High Court on 2 November 2021. What does this mean for ongoing and future claims of this nature?
In 2018, with the window for PPI complaints firmly closed, claims management companies turned their attention to what they hoped would be the next big mis-selling scandal.
The latter part of 2018 saw the emergence of Pure Legal and associated companies and their apparent quest to make interest only mortgage complaints the new PPI of its day. What followed were a number of complaints across the IFA sector, concerning interest only mortgages for the most part taken out between 2006 and 2010.
The complaints largely concerned the absence of an adequate repayment strategy to clear the capital sum at the end of the term or the broad allegation that an interest only mortgage was always unsuitable where a capital repayment mortgage was otherwise available.
The Professional Indemnity Insurance Market sought to create a unified strategy to robustly defend these cases, one at a time, based on the following key points:
- The applicable time period and whether Limitation had passed
- The scope of the IFA’s retainer i.e. advised or non-advised
- The risk warnings communicated to the client
- Whether an interest only mortgage was the most suitable product given the client’s circumstances
Whilst dealing with each claim and defending it individually has an inherent cost implication, it is considered a worthwhile expense to prevent a proliferation of settlements which would ultimately be more costly to both clients and insurers.
We are aware from our client base that a large number of court proceedings have been issued, of which Pure Legal have subsequently discontinued approximately 25%. Recent months had seen a substantial decrease in new proceedings, which perhaps makes the news of Pure Legal entering into Administration even less of a surprise.
Quanta Law, an associated company of Pure Legal, has referred a significant number of cases to the Financial Ombudsman Service. We are not aware of any FOS ruling in favour of Quanta Law and many of these cases have since been closed, the vast majority being rejected by FOS as time barred.
Insurers continue to defend interest only mortgage complaints, in Court and with FOS, with the following recent judgments adding strength to their position:
Ross v Attanta – The Judge found the value of the claim should be limited to the difference in the cost of borrowing over the term of the mortgage as between the interest only and capital repayment options.
Colborn v Bristow – The Judge found in favour of the mortgage broker on limitation grounds, as the damage was considered to be patent not latent. The Judge also found the advice was not negligent.
A higher level market strategy is in play to attempt to bring an end to these complaints, and the end of Pure Legal and associated companies is certainly regarded as a successful first step along the way. The possibility of an SRA Intervention was considered a strong likelihood before they went into administration and an issue with Pure Legal’s funding arrangements led to speculation that their cases were no longer commercially viable for them to pursue. This, hopefully, remains the case although the caseload has now been passed on to other legal firms by Recovery First for review. It will clearly take a while for the cases to be assessed but the hope is that most, if not all, will be abandoned.
This article was authored by members of the Howden Financial Lines Claims team. If you have any questions on any of the above, please contact your usual Howden representative in the first instance or please reach out to the authors below.
Tracy Simpson, Senior Claims Executive
Robert Bass, Associate Director