Equifinance Limited · DRN-6254115

The complaint Mr and Mrs M complain that Equifinance Limited (Equifinance) lent to them irresponsibly and didn’t carry out sufficient affordability checks at the time they took out their second charge loan. What happened Mr and Mrs M took out a secured loan of £70,000 with Equifinance through a broker in October 2022. The loan was to consolidate existing debt and including borrowing around a further £35,000 to repay a loan from a member of their family. Mr and Mrs M say that Equifinance did not carry out proper affordability checks. They say that there was a failure to properly verify Mr M’s employment records and financial situation and that a review of his credit history would have shown that he was in a precarious financial position and struggling to manage existing debts. Mr and Mrs M say that the loan left them with very little disposable income, which led to the financial difficulties they are in today and means they have now had to sell their home. They believe that the loan was never affordable or sustainable for them. Mr and Mrs M also complain that the valuation of the property could not have been correct, as no completion certificate was in place for building works they had done. They say that the loan was based on an optimistic valuation of what they believed their property would be worth with a new extension. Equifinance says that it completed all of the required checks in line with regulatory standards when approving Mr and Mrs M’s loan. It says that the loan was correctly assessed as being affordable for them based on the information they provided at the time. It says that Mr and Mrs M signed the application form to confirm that the information provided was accurate and complete, and that this information informed its underwriting assessment. Equifinance says that it assessed Mr and Mrs M’s income using the wage slips and tax documents provided, which were consistent with the details in their application. It then checked expenditure to see if the loan would be affordable and compared the amounts stated to national average figures. Equifinance says that, as the transport costs provided were lower than average, it queried this and was satisfied with the response. It says that it was not required to verify expenditure figures unless it had a reason to doubt them and it had no such reason. Equifinance says that the affordability assessment indicated that the loan was affordable for Mr and Mrs M and it carried out a stress test which demonstrated that it was still affordable if their first charge mortgage payments were to increase. Equifinance says that it did a credit check which showed that Mr and Mrs M had maintained payments to their creditors over the 12 months prior to the application. Although there were some historic missed payments, it says that there were no recent indicators of financial difficulty and this showed evidence of their ability to maintain the payments for the secured loan. Our Investigator looked at the case and did not think the complaint should be upheld. He said that the lender was entitled to rely on the information given by the applicant, unless there were common sense grounds for why it should doubt this information. Having reviewed

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further information provided by Equifinance following his initial view, the Investigator did not think it had common sense grounds to doubt the information provided to the extent that it ought to have asked for Mr and Mrs M’s bank statements. Mr and Mrs M disagreed with this so the case came to me to make a decision. They said that the loan approval process did not meet the standards of a responsible lender. The purpose of the loan was to consolidate existing and accumulating debt, which was an indication that financial pressure was already present. Mr and Mrs M questioned whether Equifinance made any attempt to confirm the validity of explanations provided by Mr M or just took his word for these. I set out in my provisional decision dated 11 March 2026 (reproduced below) why I was minded to find that the loan was lent irresponsibly by Equifinance and uphold the complaint. I invited both parties to let me have any further comments and evidence by 25 March 2026. Mr and Mrs M responded to say that they accepted the provisional decision and had nothing further to add. Equifinance made some further submissions; it stated that given the verification steps undertaken, the documentation obtained and the explanations provided by Mr and Mrs M when queries arose, it believes that it was reasonable for it to rely on the information provided when conducting the affordability assessment. I have set out Equifinance’s submissions in further detail below. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having considered the responses to my provisional decision dated 11 March 2026, I remain of the view that Equifinance lent irresponsibly and that this complaint should be upheld. In my provisional decision I set out the following: “The loan was taken out by Mr and Mrs M in October 2022 for £70,000 (plus £6,295 fees) over a term of 30 years. The monthly repayment was £726.58, with the total amount repayable being £248,041.80. The loan was on a fixed rate of 11% for five years followed by a variable rate and with an APRC of 12.31%. Equifinance says that the affordability assessment showed a surplus income of £267.89 a month, which indicated the loan was affordable. It also carried out a stress test to check if the loan would continue to be affordable even if Mr and Mrs M’s first charge mortgage payments were to increase, which showed a surplus of £78.73 a month, demonstrating that the loan was still affordable. The purpose of the loan was for debt consolidation and Equifinance says that the loan reduced Mr and Mrs M’s monthly repayments by £246.63, thereby improving their financial position. Mr and Mrs M’s secured loan is a regulated mortgage contract which means that the regulator’s rules on mortgage lending (known as “MCOB”) apply. At the time Mr and Mrs M took out the loan, these rules set out – in summary – that it’s the responsibility of the lender to carry out a detailed affordability assessment. MCOB sets out some of the key requirements, including (but not limited to): • A lender must assess whether a consumer will be able to pay the mortgage repayments, not just at the start but over the term • A lender must not enter into the mortgage agreement unless it can demonstrate that the mortgage is affordable for the consumer • A lender must take full account of the customer’s income, and must obtain

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adequate evidence of the income declared by the consumer • A lender must take full account of the customer’s committed expenditure (credit and contractual commitments) and take reasonable steps to obtain details of the customer’s actual outstanding commitments • A lender must take full account of the customer’s basic essential expenditure and quality of living costs of the customer’s household The rules set out requirements and guidance in relation to the assessment of a consumer’s expenditure. In particular, MCOB 11.6.12 sets out that for the purposes of its assessment of whether the customer will be able to pay the sums due a lender “may generally rely on any evidence of income or information on expenditure provided by the customer unless, taking a common sense view, it has reason to doubt the evidence or information”. In other words, it’s acceptable for a lender to rely on information about expenditure given by an applicant without seeking evidence to corroborate it – unless there are grounds to doubt what is said. Income In respect of Mr and Mrs M’s income, Equifinance used a monthly figure of £1,298.44 for Mr M and £1,982.06 for Mrs M, which made their joint monthly income £3,280.50 after tax. I can see that Equifinance obtained payslips for the previous three months in respect of Mrs M and that the average from these was the amount used as her income. So I am satisfied that Equifinance obtained adequate evidence to verify Mrs M’s income. In respect of Mr M, Mr and Mrs M say that he ran his own company, this was a new business in its first three years of trading and it was struggling financially. They say that Equifinance didn’t seek proof of earnings or statements of trading. Equifinance says that the application form stated that Mr M’s monthly net earnings from self-employment were £1,389.24. However, it says that it used the lower figure of £1,298.44 following internal checks by the underwriter. It is not entirely clear from the documentation provided how this figure was arrived at. I can see that Equifinance obtained a tax return for Mr M for the previous financial year of 2020-21. This showed an income of £18,711, made up of £3,042 for pay from employment, £2,858 for pay from self-employment and £12,811 from dividends. The tax due on this was calculated to be £315.82, which would have left a net annual figure of £18,395.18 (equating to £1,532.93 a month). Whilst I accept that this may have been the most recent tax return submitted by Mr M, I note that this related to a period which was between 18 and 30 months before the loan application was made, so it may not have been reflective of the current position at that time. Equifinance also requested Mr M’s business bank statements; it says that this was part of its internal policy when an applicant has been self-employed for less than two years. So I accept that it took some steps to verify Mr M’s income as it was required to do. However, I think that once Equifinance had reviewed these documents, that should have led it to seek further information regarding Mr M’s income – for a number of reasons which I will expand upon below. I have reviewed Mr M’s business bank statements, which cover the three-month period from 8 June 2022 to 7 September 2022. The statements show what appears to be a wage being paid to Mr M from his business account, as each such payment shows his name and the relevant week of the financial year (there are also similar payments to other individuals). These payments are £229.01 from the ‘week 10’ payment on 8 June, increasing to £235.90 from the ‘week 15’ payment on 18 July. Some weeks these payments were late. For

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example, the ‘week 12’ payment wasn’t made until 1 July, over three weeks after the ‘week 10’ payment. And it appears that Mr M didn’t pay himself anything in respect of some weeks. For example, there is no payment at all for week 11 or week 14. Likewise, the statements cover the period up to 7 September, which is week 23 of the financial year, and the last wage payment in was on 15 August, in respect of ‘week 18’. Over the period of the statements, the business bank statements show payments with the reference [Mr M] and ‘div’, so it would be fair to assume that these are dividends and include these as income. However, there are only two such payments in June, for £200 and £484.40, and nothing thereafter for the remaining period of the statements. Equifinance says that “the business bank account statements we reviewed showed healthy credit balances and regular income consistent with the declared earnings”. I disagree. Looking at each statement individually, the total amount transferred to Mr M in respect of combined wage and dividend payments was £1,371.43 for the monthly period ending 7 July, £707.70 for the period ending 5 August, and £235.90 for the period ending 7 September. This gives an average monthly income of £771.68 over the three-month period that Equifinance had the statements for. The statements show a significant volume of transfers between Mr M’s business account and Mr and Mrs M’s personal joint account, sometimes with numerous payments in and out of the account on the same day. For example, on 16 June the business account had a closing balance of 24p. On 17 June, three separate transfers of £1,500, £500 and £45.53 were made from the personal account to the business account, prior to what appears to be wage payments for ‘week 11’ being made to four individuals. Mr M doesn’t seem to pay himself a wage for this week. In another example, on 27 June a transfer of £1,000 is made from the personal account to the business account, but then two separate transactions of £200 and £191.96 are made back from the business account to the personal account. After some payments out, the business account closes at exactly zero. This pattern of transfers backwards and forwards is evident throughout the three- month period of bank statements which Equifinance had available to it at the time of Mr and Mrs M’s loan application. Over the three-month period, there were 18 transfers from Mr M’s business account to his personal account totalling £4,649.73 (not including the transfers for the wage and dividend payments referred to above, which were a further £2,315.03). Over the same period, there were 19 transfers from Mr M’s personal account to the business account totalling £14,075. So, even including the figures supposedly making up Mr M’s income from the business, he was having to pay more than double the amount he received from the business back into the business from his personal account. I think it therefore ought to have been obvious from these statements that there was a significant cashflow issue with the business and that Mr M was having to use his personal account (and therefore any income he received from that business) to subsidise the business. Equifinance does not appear to have asked any questions in relation to the large amount of transfers between the two accounts. I also note from the business bank statements that there are payments out to Mr M with the reference ‘director’s loan’ for £500 on 29 June, £2,500 on 4 July, £250 on 8 July, £1,500 on 1 September, £500 on 5 September and £200 on 7 September (with the total amount being £5,450 over the three-month period). Equifinance has indicated that it asked Mr M about these payments and he said that this was money he lent to the business previously and he was repaying it to himself. It says that Mr M’s response was “therefore an indicator of a company that is trading profitably, not of financial distress”. I think Equifinance ought to have considered whether it was

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plausible that the business was in a position to pay back money owed to Mr M given that he was still having to transfer considerable amounts of money from his personal account to subsidise the business at the same time. If the business was in a position to repay money which Mr M had lent it previously then I think Equifinance ought to have questioned why it was necessary for Mr M to keep transferring money back to the business from his personal account. The business bank statements also show monthly repayments of £141.98 for a bounce back loan and a monthly standing order for £224 with the reference of ‘repayment’ to a family member (the same family member that Mr and Mrs M had said they would be using the additional £35,000 of the second charge loan to pay back for money lent for home improvements). There are also charges shown on the business statements, including an unpaid item fee for each of the three months. I appreciate that these are outgoings of the business rather than Mr M personally, but again I think this should have flagged concerns with Equifinance as to the viability of the business, which would have been relevant to the affordability and sustainability of the loan. Overall, I am not satisfied that Equifinance adequately verified Mr M’s income. Firstly, there are issues with the figure it used for Mr M’s income, which seems to be significantly higher than the amount evidenced by the most recent business statements which were available to Equifinance. Equifinance used a monthly figure of £1298.44, but the most recent two statements from the business account show the total monthly wage payments to Mr M as being £707.70 and £235.90. Given that the disposable income on Equifinance’s calculations was £267.89 a month (and £78.73 after the stress test), this difference would have meant that the loan was not affordable. Whilst I appreciate that in the first month of the business statements, Mr M’s income from wages and dividends was more than the figure used (by around £70), Equifinance also had to ensure that the loan payments are sustainable over the term, and I don’t think it did this. Additionally, there is also the fact that Mr M is seemingly having to pay his and Mrs M’s income (and more) from their personal joint account back into the business account every month to subsidise it and keep it afloat. No account has been taken of this when calculating whether the loan was affordable for them. I think once Equifinance reviewed the business bank statements, that should have led it to question what Mr M had said about his income and that it should have sought the statements for the personal account from which the numerous transfers were being made to the business account. Expenditure It is accepted by Equifinance that it didn’t obtain any personal bank statements to verify expenditure, as it says was not required to verify expenditure figures unless it had a reason to doubt them and it had no such reason. In respect of expenditure, Shawbrook says that it compared the amounts stated on the application form with the national average figures. I can see from the affordability assessment that – save for the figure given for transport – all of the figures for which a national average figure was applicable show an actual figure which appears to have been rounded up to the nearest £10. For transport (including all car costs), the national average figure for someone in Mr and Mrs M’s circumstances with two children was £458, but the actual figure stated was significantly lower at £80 a month. Equifinance says that it queried this and was satisfied with the response that the transport costs were low as Mr M’s travel costs went through his business and Mrs M lived close to work. Although Mr and Mrs M had two children below school

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age, there was no figure given for expenditure on child care. Equifinance says that it also queried this and was told that family helped out so there was no cost. Equifinance had Mr and Mrs M’s credit file. This showed that Mr M was using over 95% of the available credit on his credit cards (£7,872 of an £8,250 limit). There was a large loan of almost £20,000, which had been in arrears or arrangement for 22 of the last 24 months and had only been brought back up to date two months before the application. There was a public utility account which appeared to have been in an arrangement until being settled less than three months before the application. There was also a County Court Judgment (CCJ) for £386 in January 2021; although this was listed as an outstanding debt which wasn’t being consolidated on the affordability assessment, no provision was made in the expenditure in respect of repayment of this amount. Equifinance says it asked about the loan which had been under an arrangement and was told that it started with an error with the direct debit, which was cancelled instead of the date being changed. Mr M said that he hadn’t realised this and the company had not contacted him until three payments had been missed but he was then unable to catch up so an arrangement was put in place. Equifinance says this explanation was plausible and it had no reason to doubt this. Given that this was Mr and Mrs M’s largest monthly repayment (£406) save for their first charge mortgage, I’m not persuaded that it is plausible that Mr and Mrs M did not notice when the payment was not debited, particularly if they had sufficient disposable income to make the repayments. Equifinance also says that the public utility account shows a pattern of payments “typically representative of an error by the utility provider” and that the settlement of this debt was “consistent with the improving credit position observed elsewhere”. It has not said that it asked Mr and Mrs M about this. In respect of the credit check overall, Equifinance says that although there were some historic missed payments, there were no recent indicators of financial difficulty which showed evidence of ability to maintain secured loan payments. It says that Mr and Mrs M had “evidenced good financial management over an extended period”. I disagree. Mr M’s reliance on credit, coupled with the fact that he was clearly relying on his personal account to support his business, ought to have raised questions for Equifinance in respect of Mr and Mrs M’s financial situation. For all of the reasons above, I don’t think Equifinance carried out adequate checks having regard to the information it held in relation to the viability of Mr M’s business and the income he was receiving from this, the credit file and the stated expenditure. This is particularly given the large amount of the loan and the fact it would be secured against his home. Whilst MCOB doesn’t say that a lender must obtain bank statements, it is good practice within the mortgage industry for a lender to obtain bank statements to verify the expenditure information provided. In the circumstances of this case, I think it would have been prudent for Equifinance to have requested three months’ statements for the personal joint account to verify the information provided. This is particularly bearing in mind that, after the stress test, there was a disposable income of only £78.73 a month for a loan with a term of 30 years. So if the expenditure was even marginally higher, that would have impacted whether or not the loan was affordable. I’ve looked at the bank statements for Mr and Mrs M’s personal joint account from 1 July 2022 to 30 September 2022, so for the three full months prior to the loan application. These show numerous transactions for which the expenditure doesn’t appear to be reflected in the affordability assessment as set out below. • The credit commitments shown on the credit report have been taken into account. However, the bank statements show a further direct debit for a retail finance provider of £193.34 a month. This has not been considered in the

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expenditure and would alone make the loan unaffordable. • The expenditure for utilities has been entered as £150 a month (£2 higher than the national average). I can see from the bank statements that there are direct debits each month to two utility companies for £210.95 and £18.15 respectively. This is £79.10 higher each month than stated and would alone make the loan unaffordable. • The expenditure for communication has been entered as £140 (£6 higher than the national average). The bank statements show direct debits for a TV licence (£13.37) and telecommunications companies (£92 and £54.34), and regular payments for a TV subscription (£7.99), and music subscriptions (£9.99 and £9.99) at the same time each month. The total of these is £47.68 higher than the amount stated in the affordability assessment. On top of this, there are also regular, (usually) small payments to another telecommunications company which amounted to £33.94 in July, £126.38 in August and £76.89 in September. Even taking the lower of these figures in combination with the direct debit amounts for telecommunications, this would make the loan unaffordable. While these are not essential or basic items of expenditure and so don’t need to be taken into account in the affordability assessment, if in practice the loan wouldn’t be affordable if these payments continued I’d expect that to be taken into account. For example, by checking that Mr and Mrs M weren’t tied into contracts and could cancel the payments to service the loan. • The expenditure for childcare/maintenance has been entered as £0. In September 2022, there were two payments made to a nursery of £743.46 and £1,000 respectively. Had these been taken into account, this would have made the loan unaffordable. • There are numerous direct debits every month to an investment company, with payments of £131.38 in July, £125.68 in August and £142.64 in September. Had these been taken into account, this would have made the loan unaffordable. • The affordability assessment shows figures of £550 for food and household goods (£4 higher than the national average), £150 for clothing and footwear (£4 higher than the national average) and £80 for transport costs (including all car costs), which was significantly lower than the national average of £458. The bank statements show that there are over £1,100 worth of payments to food delivery companies, restaurants, supermarkets and convenience stores in July, over £1,800 in August and over £1,300 in September. In respect of payments made to clothing and shoe shops, the statements show over £300 for July, August and September. The statements show around £180 worth of payments for petrol stations, transport and parking in July, around £120 in August, and around £170 in September. There is also a direct debit for around £25 to the DVLA every month, which is assumed to be a transport cost. I accept that it cannot be said with certainty exactly what the respective amounts were spent on, but it does appear that the information which would have been available to Equifinance had it checked the bank statements would have given it cause to question whether the outgoings in the affordability assessment were accurate. Both individually and together they would have made the loan unaffordable. Some of this was leisure spending and and so don’t need to be taken into account in the affordability assessment. But it’s not clear what of the various food payments were for cost of living and what for leisure. Had Equifinance obtained the bank statements, this could have been clarified.

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• There are regular direct debits for professional subscriptions for Mrs M’s employment of £16.40 every month and what appears to be a quarterly payment of £30. There are also direct debits every month for £14.99 to a credit reference agency and payments of £19.99 to a gym in August and September. While these are not essential or basic items of expenditure and so don’t need to be taken into account in the affordability assessment, if in practice the loan wouldn’t be affordable if these payments continued I’d expect that to be taken into account. For example, by checking that Mr and Mrs M weren’t tied into contracts and could cancel the payments to service the loan. • For July and August, there was a standing order for £326.74 coming out of the account with the reference ‘repayment plan’. Whilst this appears to have stopped from September, it would likely have raised questions had the statements been obtained. The personal bank statements would also have given Equifinance a further indication of the cashflow issues with the business, showing the numerous transfers going in and out. There were also what appear to be business transactions going in and out of the personal account. Equifinance says that it queried the director’s loan payments going from the business account to the personal account and was told by Mr M that he was repaying himself money he had lent to the business previously. I think the personal bank statements would have given further reason to doubt this explanation in addition to the information which was already available to Equifinance on the business statements. By way of example, the £2,500 ‘director’s loan’ was paid from the business account to the personal account on 4 July; the full amount was then transferred out to a family member on 5 July. On 11 July the same family member pays £1,500 back into the joint personal account (which is around £30 in credit), of which £1,150 is transferred to the business account on the same date. A further £1,000 is paid into the personal account by the family member on 15 July (by which point the personal account is almost £140 overdrawn), and a further £1,100 on 18 July (when the personal account is back to being over £240 overdrawn), of which £830 was transferred to the business account (prior to wage payments being paid out). I think that this demonstrates that Mr M was not only having to use his personal account and income to subsidise the business, but he was also having to rely on a family member to both subsidise the business and maintain expenditure from his personal account. Conclusion Whilst the loan reduced Mr and Mrs M’s monthly expenditure by consolidating some – but not all – of their debts, it increased their overall indebtedness by almost £42,000 (for the additional amount of £35,680 on top of the consolidation, the lender fee of £1,295 and the broker fee of £5,000). It also meant that the debt was secured against their home over 30 years which would add a significant amount of interest to the amount they initially borrowed and mean that their home could be repossessed if they were unable to maintain their repayments. I note that Mr and Mrs M went into arrears on the loan at the time of the second payment in January 2023. Had Equifinance considered whether the information in its possession gave common- sense grounds for doubting what was on the affordability assessment, as I think it fairly should have done, it would have asked for the further information I’ve set out above. And had it considered any of this evidence, I think it ought reasonably to have questioned whether the loan was affordable and sustainable for Mr and Mrs M. And given the amount of this loan, and that it was secured on their property, the impact of

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that on Mr and Mrs M could be significant. I think this ought to have led Equifinance, acting fairly, to question whether it was responsible to lend in these circumstances. I think the information available supports that the loan was not affordable or sustainable for Mr and Mrs M and that it was not assisting them by consolidating some of their debts. I accept that Equifinance could not have foreseen that Mr and Mrs M would go into arrears so quickly when making its lending decision. But I think it ought to have understood that the loan was not affordable and might lead to future financial difficulties. It is my view that had Equifinance properly reviewed the information available to it and requested further information – as I think it ought to have done in the circumstances – it would not have been able to demonstrate that the loan was affordable or sustainable for Mr and Mrs M. Overall, I don’t think it was reasonable for Equifinance to offer Mr and Mrs M the loan secured against their home. I am of the view that it didn’t carry out sufficient checks and, had it done so, it would have shown that the loan was unaffordable and unsustainable for Mr and Mrs M and should not have been offered. In all the circumstances, I am minded to find that Equifinance lent irresponsibly. Valuation Given my provisional view that this loan was irresponsibly lent in its entirety, I have not addressed this aspect in any detail. As explained by the Investigator, this Service can only look at whether it was reasonable for Equifinance to rely on the expert report in deciding how much to lend. As the valuation was carried out by an independent surveyor, Equifinance was not responsible for its content. I am satisfied that Equifinance instructed a suitably qualified surveyor – as it was required to do – and that there was nothing in the report which ought to have caused it to have any concerns about any building work being carried out.” As set out above, Mr and Mrs M have indicated that they accept the provisional decision and have nothing further to add. Equifinance has made some further representations which I have addressed below. Equifinance says that it is not a regulatory requirement under MCOB for a lender to obtain bank statements and that a lender is allowed discretion to apply a proportionate level of verification, provided the overall affordability assessment is reasonable. It says that it verified income using payslips, obtained Mr M’s tax return and business bank statements, reviewed Mr and Mrs M’s credit files and queried expenditure where this differed materially from national averages. It recognises that further investigation might have revealed additional information but says that the steps taken were reasonable and proportionate based on the information available at the time. Equifinance says that it is concerned that the assessment appears to rely significantly on hindsight analysis and information that it was not required to obtain under MCOB. I accept that there is no regulatory requirement for a lender to obtain bank statements in all cases. But it should verify income, and it should check information about expenditure where there are common sense grounds for doubting what it has been told. And the overriding obligation is to ensure the lending is affordable and sustainable, and responsible – MCOB prescribes minimum standards for ensuring that, but what is appropriate in individual cases will depend on the circumstances of that case. Here, for the reasons set out in my provisional decision, I think that once Equifinance reviewed the business bank statements, that should have led it to question what Mr M had said about his income and that it should have sought the statements for the personal account in this particular case. I think that the conduct of the business account ought to have

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led Equifinance to question whether the income he declared he was taking from the business was accurate and sustainable. In those circumstances, it ought reasonably to have obtained the personal bank statements to check the money coming into the business bank account from the personal account, which in turn contributed to the income Mr M drew. In the particular circumstances of this complaint, based on what the business account statements showed, this was an essential step in verifying Mr M’s income. Equifinance says that Mr M’s income was independently verified with his SA302 and corresponding tax calculation, confirming annual net income consistent with the figure used in underwriting. Equifinance says that the business account showed that the company was ‘generating a clear operating surplus’ as, in the most recent month of statements, £25,333 was paid in versus £22,427 paid out and in the prior two months, outgoings only marginally exceeded income by about £1,000, which it said was normal due to the timing of invoices and drawings. It said that this demonstrated that the business was profitable and able to support the level of income declared, which was consistent with the verified figures. Equifinance says that the precise nature of individual withdrawals, including director’s loans, dividends and other drawings, is not relevant to assessing affordability as ‘such movements are routine in owner-managed businesses and reflect standard cashflow management’. It says that what matters is the verified income supported by business profitability and that the transactions highlighted do not undermine the income used in underwriting and, on that basis, there was no requirement to obtain personal bank statements. As set out in my provisional decision, I disagree that the figure used for Mr M’s income was consistent with the information in the tax documents, which also related to a period at least 18 months prior to the loan application. Further, I remain of the view that the recent business bank statements available to Equifinance did not support the figure used for Mr M’s income. I disagree that the precise nature of the withdrawals is irrelevant to affordability as the transactions show the wages and dividends paid to Mr M, which must form the basis of the income figures used. As set out in my provisional decision, the average monthly income made up of combined wage and dividend payments was £771.68 over the three-month period that Equifinance had the statements for, which was significantly lower than the £1,298.44 figure used in the affordability calculations and would have made the loan unaffordable. I am not persuaded that the fact that more money went into the business account than went out for one of the three months for which Equifinance had the statements supports the assertion that the business was profitable and able to support the level of income declared. As set out in my provisional decision, there were a significant amount of transfers between the business account and Mr and Mrs M’s personal account, with more than double the amount paid from the business account to the personal account being paid back to the business over the three-month period. I disagree that this demonstrates that the business was profitable or that this reflects standard cashflow management. To the contrary, I remain of the view that the statements demonstrated that there was a significant cashflow issue with the business, with Mr M essentially subsidising its cashflow, yet Equifinance did not ask any questions in relation to the large amount of transfers between the two accounts. I also disagree that the director’s loans were not relevant to affordability. Indeed, Equifinance has said that it asked Mr M about these, so it must have deemed that this was a relevant factor. However, as set out in my provisional decision, it did not appear to consider the plausibility of Mr M’s response that the business was paying back money owed to Mr M, having regard to the fact that he was still regularly transferring considerable amounts of money from his personal account to subsidise the business at the same time. Equifinance says that the credit report further confirms affordability; historic arrears had been resolved which demonstrated an improving credit profile and the consolidation element of the loan reduced monthly outgoings. It says that there was no indication from the credit report that personal bank statements were necessary.

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My view that the personal bank statements were necessary was not based on the credit report alone. As set out in my provisional decision, I think Equifinance should have considered all of the information in its possession, in particular the business bank statements, which ought to have given common-sense grounds for doubting what was on the affordability assessment, especially whether Mr M’s income had been adequately verified. Had Equifinance properly reviewed the information available to it and requested further information – as I think it ought to have done in the circumstances – it would not have been able to demonstrate that the loan was affordable or sustainable for Mr and Mrs M. Whilst I have considered Equifinance’s further submissions, I remain of the view that the loan was unaffordable and unsustainable for Mr and Mrs M and should not have been offered. In all the circumstances, I therefore find that Equifinance lent irresponsibly. Putting things right Whilst I don’t think the loan should have been given, Mr and Mrs M had the benefit of the money borrowed, so I think it right that they should have to repay that amount. However, had the loan not been given then they would not have had to pay the fees, charges or interest incurred on this. I am aware that the property has now been sold and the loan repaid. In order to put things right, Equifinance should therefore treat all payments made by Mr and Mrs M as payments towards the capital amount of the loan, including the including the payment made to redeem the loan. It should not include any borrowing for fees and charges. The loan statements indicate that the repayments made by Mr and Mrs M over the course of the loan amounted to £14,713.11 and Mr and Mrs M advised that the redemption figure was £94,197.47 but this is subject to confirmation by Equifinance. I recognise that this is not an ideal way of putting things right – it doesn’t take into account the fact that Mr and Mrs M did consolidate some (but not all) of their existing debts, and have therefore, through my award, saved interest on that debt they would otherwise have paid. However, given the interest rates charged by Equifinance, and the difficulty of estimating what Mr and Mrs M would have paid towards other debts, I think it’s reasonable to take a relatively simple approach to resolving this matter by simply saying that Equifinance should not retain fees and interest on money it ought not fairly to have lent. I’m satisfied that this is as close to fair compensation as it is reasonably possible to get in this case. So I recognise that there is likely to have been some saving through consolidating high- interest credit card and loan debt into the secured loan, albeit I don’t think I can accurately estimate that saving, and I don’t think it’s likely to be very substantial. However, my award for financial loss will result in Mr and Mrs M having paid no interest on any of the consolidated debt. In recognition of the fact that this may, to some extent, leave Mr and Mrs M over-compensated, I do not intend to award further compensation for any distress and inconvenience in addition to that award. In light of the above, I direct Equifinance to do the following: • Equifinance should calculate the amount borrowed without any fees or charges (£70,000). It should then calculate the total amount of payments made to it by Mr and Mrs M (including the payment made to redeem the loan) and treat these as payments towards this capital amount. • Equifinance should pay Mr and Mrs M the difference between the total amount paid and the £70,000 borrowed. • Equifinance should pay Mr and Mrs M simple annual interest of 8%* on any overpayment, running from the date the mortgage was redeemed to the date of settlement. • Equifinance should remove any adverse information about the loan from Mr and Mrs M’s credit file.

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* HM Revenue & Customs requires Equifinance to take off tax from this interest. Equifinance must give Mr and Mrs M a certificate showing how much tax it’s taken off if they ask for one. My final decision For the reasons I’ve explained in my provisional decision and above, my decision is that I uphold this complaint against Equifinance Limited and require it to put things right as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs M and Mr M to accept or reject my decision before 24 April 2026. Rachel Ellis Ombudsman

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