Principal Mortgage Services Ltd of County House, St. Marys Street, Worcester, has been publicly censured by the FSA for breaching its principles and had its Part IV Permissions cancelled.
PMSL entered into liquidation on 19 November 2010. The regulator said the were it not for PMSL’s financial circumstances, it would have imposed a fine of £70,000 on PMSL, a firm which made an annual profit of between £500 and £20,000 during the relevant period.
Prior to its liquidation, PMSL was a small mortgage intermediary based in the West Midlands. During the relevant period, it advised approximately 738 customers to take out interest only mortgages with a mortgage accelerator plan it had developed called the Flexible Repayment Plan (FRP), which was operated by PMSL’s sister company, FRL. PMSL charged customers an up front fee of £995 for the FRP, in addition to a broking fee of around 1% of the mortgage, and FRL charged an ongoing annual administration fee of £60. PMSL paid a proportion of the £995 fee to FRL.
The FRP operated as a means by which customers could make capital repayments on their interest only mortgages. Customers would pay the monthly interest on the mortgage directly to the lender, and pay an additional amount into the FRP. These additional monthly payments would be collected and held in an account operated by FRL, and would be transferred to the customer’s lender at selected annual intervals.
The FRP was an unregulated product but the advice PMSL gave to customers about it was regulated advice, as it was inextricably linked to advice given to customers to take out regulated interest only mortgages. The FSA considers that the FRP was the main reason PMSL recommended customers to take interest only mortgages.
PMSL provided marketing material to customers purporting to demonstrate the benefits of taking an interest only mortgage with the FRP, and individual personalised illustrations purporting to show the savings the customer would make by taking out an interest only mortgage with FRP as compared to their current mortgage arrangement, or a repayment mortgage.
The FSA said PMSL failed to pay due regard to the interests of customers and treat them fairly. It promoted the FRP to customers at the first meeting with them, before assessing whether taking out an interest only mortgage with the FRP was suitable for their particular circumstances. There was no evidence of any research being undertaken to determine whether a repayment or interest only mortgage was most suitable for the customer; any evidence of research, or product sourcing, on the customer files related solely to interest only mortgages.
The brokerage also recommended interest only mortgages with the FRP to customers who could have achieved the benefits purportedly associated with the FRP directly from their lender. Most customers could have made capital repayments directly to the mortgagee without incurring any fees or charges, thus saving the £995 initial fee and £60 annual administration charge for the FRP. PMSL did not explain to customers that they could overpay their mortgages directly to the lender, without incurring the costs of the FRP.