A retired couple are being made homeless following a heartbreaking mis-selling scandal.
Richard and Rita Kauffman were talked into an investment which they were assured was low risk and ‘couldn’t fail’ a decade ago.
But now the government is set to repossess their home.
The horror investment
Ten years ago the couple had around £100,000 in savings, and a mortgage of nearly £160,000 on their £450,000 home.
A financial adviser from Mint Financial Services spoke with them about ways to reduce their bills and boost their income in retirement. Despite being told that they were cautious with their money, didn't want to put their home at risk and didn't want to invest in stocks and shares, they were advised to invest in the Integrity Cash Maximiser.
This, the adviser said, would pay off their mortgage and give them some extra savings as a bonus.
The Cash Maximiser was a complicated plan, which involved borrowing large sums, and then investing them into second-hand endowment policies. The idea was that these policies would mature and generate enough cash to cover the cost of the loan, with a profit on top.
However, the investments faltered, leaving thousands of people hugely out of pocket.
The Kauffmans invested £50,000 of savings and extended their mortgage to £374,925 with Mortgage Express, which was then part of Bradford and Bingley. They took out a separate £194,931 loan with Bank of Scotland, bringing up their total loan to £461,024.
The money was used to buy 22 second-hand endowment policies through Bank of Scotland and to start paying the couple a monthly income of £2,401. This would cover their £1,715 mortgage payment, leaving them £686 to spend.
Richard and Rita received the money as expected for a couple of years, before the stock market started to suffer. In 2009, Bank of Scotland told them their investment was at risk and they should put in another £37,861. They refused and then their payments stopped.
Mint rejected the couple’s complaint that the investment was far too high-risk, so they went to the Financial Ombudsman Service (FOS) which ruled in their favour. Even then, the compensation provided was only £100,000.
They then went to court, but settled for a sum of £105,000 after legal costs in August 2011, clearly not enough to cover their outstanding debt.
After the financial crash, the government took over Mortgage Express under its UK Asset Resolution (UKAR) firm, which also took on the 'bad bank' portion of Northern Rock.
UKAR says it has provided the couple with ‘multiple options’ but has no choice but to commence repossession proceedings. The couple are due to be evicted next week unless they can clear the outstanding £376,000, but there is a petition addressed to the Chancellor George Osborne in a bid to save them.
Integrity, the firm which offered the Cash Maximiser product, folded in 2009. The adviser that sold them the investment has since died.
Borrowing to invest
The Kauffmans are not the first to suffer as a result of being encouraged to borrow in order to invest, but their tale is a devastating one. Tricked by an unscrupulous adviser, they are about to lose everything, even though the FOS has ruled that they did nothing wrong.
This should serve as a stark reminder of the dangers of investing in something that you don't fully understand, particularly if the investment sounds too good to be true. All investments are risky – there is no such thing as a 'can't fail' investment – so you should always only ever invest as much as you are willing to lose.
If you don't understand exactly where your money is going, and the risks involved, then walk away.