The Ombudsman's final decision:
Summary: There is no fault in the Council’s actions when Miss X applied to purchase a property through its Low Cost Housing Scheme. The Council is not responsible for providing financial advice or recommending a lender who may lend against properties under the scheme. The decision to grant a mortgage on a property lies with the lender and not the Council.
- Miss X complains the Council failed to tell her that mortgage lenders were unwilling to provide mortgages on its low cost housing scheme. She says it also failed to provide any information about which mortgage lenders might be willing to provide a mortgage. She says because of this she could not get a mortgage; the sale fell through and she lost money.
The Ombudsman’s role and powers
- We investigate complaints about ‘maladministration’ and ‘service failure’. In this statement, I have used the word ‘fault’ to refer to these. We must also consider whether any fault has had an adverse impact on the person making the complaint. I refer to this as ‘injustice’. We provide a free service, but must use public money carefully. We may decide not to start or continue with an investigation if we believe it is unlikely we would find fault. (Local Government Act 1974, section 24A(6), as amended)
- If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)
How I considered this complaint
- I have considered the information Miss X provided. I have considered the information the Council provided in response to our enquiries.
What I found
- The Council has run a Low Cost Home Ownership Scheme since the 1990s. It enables first time buyers to buy a property by ensuring its value is below the value of a similar property on the open market. Buyers own a percentage of the property and the Council owns the rest. In most cases, covenants require properties in the Scheme to remain affordable and buyers cannot buy the Council’s share of them.
- Miss X wanted to buy a property in the Council’s Low Cost Home Ownership Scheme. The Council decided she was eligible for the Scheme. But when Miss X tried to get a mortgage for the property she could not do so. She found that lenders were not willing to lend on properties in the Scheme.
- Miss X believes the Council should have warned her at the outset that she would have difficulties getting a mortgage for the property she was interested in. She said its failure to do so meant her purchase fell through and she lost money.
- In response to Miss X’s complaint, the Council said
- its role was limited to ensuring buyers were eligible for the Scheme, and that the value of the property when sold did not exceed the percentage set out in the covenant;
- it was not involved in selecting lenders;
- people nationally were reporting difficulties securing mortgages, so it was not a problem only in the Council’s area;
- it was obliged to offer information about the Scheme so that existing home owners can sell their homes; and
- it accepted there were issues with the Scheme and so it would review its terms to see if it could change them to make the Scheme more acceptable to lenders.
- The Council’s role is limited to deciding who is eligible to purchase a discounted property through the Low Cost Home Ownership Scheme. This involves checking that a person has a connection to the area, be “in need of assistance through the scheme” and that the value of the property is in line with the discount set out in the covenant. The Council is not responsible for assessing a person’s ability to obtain a mortgage or for providing mortgage and financial advice.
- Miss X says the Council should have advised her that she may experience difficulties obtaining a mortgage and provided her with a list of lenders who might be willing to lend. However, that is not the Council’s role.
- The Council cannot provide financial advice without being regulated by the Financial Conduct Authority. The Council can give guidance about what lenders have agreed mortgages against discounted properties in the past but the final decision on any lending would lie with the lender.
- Every lender has underwriters who set conditions for lending and these change on a regular and sometimes daily basis. Therefore, it may be that a lender has previously provided a mortgage on a discounted property but that does not mean they will continue to do so.
- There are a vast number of lenders on the market who provide domestic mortgages who’s lending criteria will change on a regular basis. I would not expect the Council to keep track of which of those lenders is willing to lend against properties under the Low Cost Home Ownership Scheme.
- For the reasons set out above the Council is not at fault for failing to provide Miss X with details of a lender who would give her a mortgage on a property under the Low Cost Home Ownership Scheme. There is also no fault in the Council continuing to run the Scheme. In the last 12 months 7 properties subject to the Scheme have sold.
Investigator's decision on behalf of the Ombudsman