"The broker had a duty to ensure what he told Mr H and Mr S was correct, failing which Advance was liable for any adverse consequences they might suffer."
The couple, known as Mr H and Mr S in the FOS complaint, had already exchanged contracts when they found out and had to increase the mortgage amount to find the extra money. They say if they’d known the true position, they wouldn’t have bought the new house.
The couple each owned properties of their own before Mr S moved in with Mr H and rented out his property to family members.
The pair then decided to buy a home together, funding it by selling Mr H’s property and using the equity, some savings, and a new joint mortgage to pay for it.
The couple asked their broker whether they’d need to pay the higher rate of SDLT that is payable on second homes. The broker said he’d checked with a solicitor and that higher SDLT wouldn’t be due provided it was clear that Mr S’ main residence was Mr H’s current home.
He recommended they put Mr S on the electoral roll at Mr H’s address and record it as the address for his bank account.
After exchanging contracts on the new home, their solicitor informed them they would need to pay the higher stamp duty rate, by which point they were contractually-bound to complete.
The pair needed to find about £30,000 in time for completion and had to increase the mortgage to one with a higher interest rate. The higher rate, combined with the bigger loan, increased their monthly payment to a level they weren’t comfortable with.
Advance said its broker wasn’t acting as a tax adviser but just passing on information, and that it was up to the couple's solicitor to advise them on the SDLT liability.
However the Ombudsman decided that the broker gave the impression he was giving advice on SDLT, and if he wasn’t, should have told Mr H and Mr S to double check with their solicitor.
FOS ordered Advance to pay the couple a lump sum to cover the life-time interest they’ll pay on the extra £25,000 they borrowed, plus £750 compensation for their time, trouble and upset.
On the interest part of the award, the adjudicator said Advance should use the initial rate of 1.99% for the duration of the product, and a representative rate of 2.5% thereafter.
In the decision, the Ombudsman said: "There’d be no reason for Mr H and Mr S to ask elsewhere for advice on SDLT; as far as they were concerned, they’d already asked and been told what they needed to know. In that context, I’m afraid Advance cannot evade liability for the consequences of the broker’s actions by saying Mr H and Mr S should have got the right advice from their solicitor; nor for any other reason, for that matter.
"Advance’s broker was asked for guidance, and instead of saying it wasn’t his guidance to give, he gave it. Once he did that, the broker had a duty to ensure what he told Mr H and Mr S was correct, failing which Advance was liable for any adverse consequences they might suffer.
"It also doesn’t matter whether Mr H and Mr S took the steps the broker recommended or not. That’s because registering on the electoral roll and changing the address on a bank account aren’t actions that would allow Mr S to meet the test of Mr H’s property being his main residence under the rules on SDLT.
"I think the adjudicator’s recommended approach to redress – including the use of a 2.5% representative rate for the period after the initial product ends – to be appropriate and fair. Advance hasn’t mentioned it, but I’ve thought about whether the lump sum should be discounted to reflect that it’s a payment now for losses that will occur in the future. Given the uncertainty about what rate Mr H and Mr S will actually pay after they leave the initial product, I’ve decided that no discounting will be necessary."
