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CHAPTER 9

THE FINANCIAL ANALYSIS OF CASE 2
EXPOSING FRAUD

9.6.2The Fraudulent Status of the Advice Given
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Our Case 2 Analyses of the Endowment Mortgage and the Repayment Mortgage (see Section 9.2, Section 9.3 and Section 9.4) showed that, for an Amount Borrowed of £40,000 over 20 years at 11.85% p.a.:

(i)

investment in the Endowment Mortgage yields an Internal Rate of Return of 14.39% p.a. with an Equivalent Monthly Cost of £341.23 —— this, CONDITIONAL on the assumed growth rate being achieved.

(ii)

investment in the Repayment Mortgage yields the CERTAINTY Internal Rate of Return of 14.435% p.a. with an Equivalent Monthly Cost of £326.70.


Therefore, the Endowment Mortgage does not provide any Excess Return, above that of the Repayment Mortgage, to justifiably compensate the borrower / investor for its associated Risks.


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Our Case 2 Analysis of the Early Repayment Term (see Section 9.5) showed that:

(i)

by choosing an 18 Year Repayment Mortgage our loan of £40,000 @ 11.85% p.a. would be repaid WITH CERTAINTY for a Net Outlay of £342.44 per month —— this corresponds to an Internal Rate of Return of 14.641% p.a. on our investment.

(ii)

by choosing a 20 Year Endowment Mortgage our loan of £40,000 @ 11.875% p.a. would be repaid in 18 Years, IF THE ASSUMED GROWTH RATE IS ACHIEVED, for a Net Outlay of £341.23 per month —— this corresponds to an Internal Rate of Return (CONDITIONAL on the assumed growth rate being achieved) of 14.675% p.a. on our investment.


Therefore, on the basis of the 18 year Early Repayment Term, the Endowment Mortgage does not provide any Excess Return, above that of the 18 year Repayment Mortgage, to justifiably compensate the borrower / investor for its associated Risks.


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As we have shown in Section 9.6.1, the Risks associated with the Endowment Mortgage are very real and very substantial.

 

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(a)

First National’s expert advice (i.e. their oral representation supported by the written representations in their Mortgage Quotation Comparison) to me was to choose the Endowment Mortgage. On the basis of their fiduciary position, such advice clearly constitutes negligent misrepresentation.


(See Section 2.3.3: Negligent Misrepresentation. See also Section 2.8.1: The Right to Revoke the Contract , and Section 2.8.3: The Measure of Damages as a result of a successful Action based on the Common Law liability under Negligent Misrepresentation.)


(b)


But, as we have proven, First National’s representation to me that the Endowment Mortgage was the best choice is a false representation.



The question therefore arises whether First National had an honest belief in the truth of their representation.


First National were possessed of considerable financial expertise.
Yet they wilfully shut their eyes to the true financial facts, or they purposely abstained from inquiring into them.



No reasonable man could, in such circumstances, infer that they had an honest belief that the Endowment Mortgage was a better investment option than the Repayment Mortgage.


Their advice, therefore, constitutes fraudulent misrepresentation.


(See Section 2.3.2: Fraudulent Misrepresentation. See also Section 2.8.1: The Right to Revoke the Contract , and Section 2.8.2: The Measure of Damages as a result of a successful Action based on the Common Law liability under Fraudulent Misrepresentation.)


(c)


Irish Life are equally, or to an even greater extent, complicit in this fraudulent misrepresentation.


They are the primary architects of the Mortgage Quotation financial analysis data presentation. They KNOW, and intend, that this data will be passed on to the person seeking a Mortgage. 


They have either purposely abstained from making proper inquiry into the true financial facts or deliberately abstained from presenting them.


They know that the financial analysis data, as presented by them, is formulated in such a way that First National’s advice, based on this data, will be to choose the Endowment Mortgage. 


Not only do they not deliberately intervene to block such advice, it is they who provide the objective data supporting it. 


They therefore collude with the advice given by their tied agent.


(See Section 2.3.1: The Conditions Necessary for the Existence of Misrepresentation and  Section 2.3.2: Fraudulent Misrepresentation. See also Section 2.7: The Effect of Agency.)

 

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