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Potential buyers complained they were not properly advised about the pre-approval process and wanted to “recoup” losses on homes they bid on. (File photo)
photo: RNZ/Cole Eastham-Farrelly
A couple who placed an unconditional bid on a house at auction, not realising they were not pre-approved for a home loan, were offered $20,000 by their financial adviser.
The two women lodged complaints against advisers with Financial Services Complaints Ltd, a financial ombudsman service that deals with complaints that it cannot resolve directly.
It does not identify the complainants or the organisations they are complaining about.
The couple already own a house in South Auckland and a rental property in Whangarei, but are considering buying another investment property.
In February 2021, one of the women contacted a financial advisor, who suggested they sign up for an “estate scheme.”
In February and March, the couple provided information about their finances and discussed with advisers how much they might borrow.
They were told they could borrow up to $1.6 million.
In April that year, one of the women told the counsellor they were going to attend a property auction in Te Atatu South.
The advisor told her there were some issues with the property and the lender might need more information.
Despite this, they bid $1.6 million and won the auction. Their bid was unconditional, so they had to complete the purchase.
But due to the housing problem, banks were unwilling to lend the money and the consultants had to get them loans from non-bank lenders at a higher interest rate.
They complained that they were not properly advised about the pre-approval process and wanted to “recover their losses”.
They say they lost $126,571, including late settlement fees, the cost of arranging non-bank financing, extra interest and are seeking $5,000 in damages for inconvenience and stress.
One of the women told FSCL they felt the consultant’s assessment superseded their need for pre-approval.
The consultant argued that the women were not told that pre-approval was not required, nor were they told they could bid without it.
FSCL conducted an investigation and said the consultant did not keep complete records.
FSCL said that while consultants may indeed indicate they can offer up to $1.6 million for a property, it is unlikely that the scheme would be promoted as a pre-approved alternative.
FSCL said the $1.6 million figure was based on owner-occupied properties and that investment properties typically require larger deposits.
Given that these women already have experience in the real estate market, they should know the risks of bidding without funds.
The consultant admitted that he had failed to meet his record-keeping obligations and offered to pay $20,000 to resolve the complaint.
“In addition, they did not adequately respond to contact from the buyer on April 9, 2021. When she contacted that day, the advisor realised that she had not been pre-approved and that she intended to bid.
“While the adviser pointed out issues with the property, she did not warn her of the risks and possible consequences of bidding without obtaining prior approval from the lender.”
FSCL said $20,000 was a fair offer.
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