Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in retail mortgage lending and regulation.
Focus on Northern Ireland
Focus on Scotland
Last year the Government announced that it was planning to make greater use of court buildings by running a pilot on extended court operation hours. The initial plan was criticised and the Government paused to consider the position further.
The Government has now launched a revised pilot for extended court hours. The objectives of the pilot are to assess how court users are affected by the hours and whether a sustainable and efficient way of working can be implemented across the court system. The hope is that it will also promote greater access to justice for individuals.
The voluntary pilot scheme will run from spring 2019 for a six month period at the Brentford and Manchester County Court hearing centres. The exact start dates have not yet been released.
Brentford has earmarked an 8:00 - 10:30am listing slot on Tuesdays and Fridays for applications to suspend warrants and for adjourned possession work. Manchester has set aside a Monday evening session of 4:30 to 7:00pm for litigation work including housing possession claims.
Customers who have work commitments may find the alternative hours an attractive option and lenders should therefore consider whether agreeing to a hearing within extended hours would help them to comply with their regulatory obligation to treat customers fairly. Lenders will need to ensure that staff are available to assist with any issues or questions which arise at or shortly before the hearing.
We are interested in hearing from any lenders who wish to actively participate in the pilot so that we may work with you to see whether the extended hours help to create positive outcomes for customers.
Draft legislation has been published to create a new banded probate fee structure based on the value of the estate. The current fee is £215 (£155 for applications made by solicitors). The new proposed bands are:
Below £50,000 Exempt
£50,000 - £300,000 £250
£300,000 - £500,000 £750
£500,000 - £1m £2,500
£1m - £1.6m £4,000
£1.6m - £2m £5,000
The new fees will generate £145m extra per annum to fund the running of the court system.
The fee escalates quickly and will have to be provided before a grant can be obtained. The Government state that they intend to work with UK Finance to provide guidance to personal representatives as to how these upfront fees may be paid.
The higher fees may discourage some relatives from applying for a grant and mean that some estates are not properly administered as family members may instead attempt to service mortgage instalments from their own resources. Lenders should always be cautious about accepting payments from third parties and should insist that a deceased customer's estate is properly administered.
The fee proposals are subject to approval by Parliament and are anticipated to come into force in April 2019.
An independent report commissioned by the Building Societies Association (the BSA) has recommended that its members consider the return of 100 per cent LTV mortgages to accommodate borrowers who do not have a deposit.
This announcement has received mixed views with many being reminded of the 2008 financial crisis. Concerns have been highlighted in the industry that rising interest rates and stalling or falling house prices will lead to some borrowers falling into negative equity almost immediately. Inevitably, Brexit has also been floated as a reason that this should not currently be considered due to the unpredictability of the UK’s economic situation.
However, the BSA report confirmed “Most underwriters in the sector who we spoke to are not philosophically averse to lending 100 per cent” and that it was expecting more building societies to introduce these types of deal in the future. A recent YouGov poll found 48% of those interviewed were in favour of the re-introduction of 100% mortgages.
It remains to be seen whether any lenders decide to open applications for 100% LTV mortgages. However it looks certain that, if they do, different and more stringent lending criteria will be implemented to avoid a repeat of the past. The BSA has advised that modern technology will help in assessing the level of risk to each borrower before lending.
Following last years' call for evidence the Government has now published a consultation detailing how the breathing space scheme will operate.
60 days of breathing space will be given to ensure debtors have the time and space to obtain advice and enter into a sustainable debt solution. To qualify, an FCA regulated or FCA exempt organisation must judge and certify that the debtor has problem debt. Debtors will not be eligible for breathing space more than once in any 12 month period.
Mortgages are included in the scheme. During the breathing space period, no costs or interest may be added to the debt in respect of arrears and no recovery action would be permitted in relation to the arrears. Mortgage instalments will be treated as an on-going liability. If the debtor defaults on the on-going instalments (even during the breathing space period) then costs and interest may be added to these instalments and the lender would be able to take enforcement action in relation to these new defaults.
Lenders will usually charge interest on the whole outstanding debt which includes all arrears. It is not clear in practice how the scheme will operate to 'freeze' interest on mortgage arrears caught by the breathing space period, whilst still allowing interest to be charged on the outstanding balance less the arrears.
This is a point that lenders should be considering as part of the consultation as for many, it would involve significant system changes to accommodate this change.
The statutory debt repayment plan would enable debtors to pay off problem debt over a manageable time period. Mortgage arrears will be excluded from the debts included in the statutory plan. This will allow lenders to continue to make their own arrangements with customers regarding mortgage arrears, once a breathing space period has ended.
The consultation runs until 29 January 2019. We will report again once the consultation results are published. If you have any comments on this please get in touch.
At UK Finance's Annual Mortgage Conference, Matt Prior from the Ministry of Housing & Local Government discussed the conveyancing process. He said it currently takes about 19 weeks and the cost of failed transactions equates to £270m a year. He went on to state that it should be possible to get data about the property upfront and it is not unreasonable for information on remaining lease terms or amounts of services charges to be provided to prospective purchasers. Mr Prior believes that this approach would allow buyers to make informed buying decisions, resulting in less abortive transactions, and reducing the time currently taken in the buying process.
Mr Prior expressed support for the Conveyancing Association's idea of a property logbook containing the necessary information. This logbook would then be available each time the property was sold.
It has been eight years since the Coalition Government scrapped Home Information Packs (HIPs), calling them unnecessary red tape strangling the housing market. The logbook appears to be a re-branded HIP. Whilst the logbook would be available for future transactions, in practice some of the important information, for instance, costs of maintenance charges, would change over time. The logbook would have to be reviewed and updated at each point of sale making it perilously similar to the ill-fated HIP.
Whether the logbook idea will gain more traction and be introduced either by industry pressure or by a legislative change remains to be seen.
In March we reported on the Residential Landlord's Association campaign for a specialist housing court. This campaign has gained support and the Government are exploring whether a specialist court dealing with a range of issues such as possession claims, disrepair and housing disputes should be created. The Government has launched a call to evidence seeking comments.
A big part of the call to evidence is how the possession process might be improved. The focus is very much on possession claims by landlords, although the Government has recognised that any change in this area would also affect mortgage possession claims.
Most of the questions being asked relate to the time taken at each stage of the possession process and whether landlords view the time taken as too long.
From our own data, the average time between issuing a claim and the hearing date is currently 58 days. However, individual county court hearing centres differ vastly. For instance at Liverpool the average time is 42 days whereas in Stratford Housing Centre the average goes up to 79 days.
In relation to warrant requests the average time between applying for a warrant and eviction is 81 days. Again, the timescales differ vastly with the worst performers being Clerkenwell & Shoreditch and Stratford Housing Centre (222 and 206 days respectively). At the other end of the scale are Blackpool and Bournemouth who are taking 44 and 43 days respectively.
The times taken specifically by the London hearing centres are a concern. We hope that this call to evidence will help address this.
Equity release lender More 2 Life (M2L) surveyed 152 equity release advisers to gain their views on vulnerability. It is reported that over 80% of advisers said there is a need for greater education to spot vulnerable customers, with only 17% saying it was easy to spot a vulnerable customer. When M2L asked how advisers sought to identify signs of vulnerability, 91% confirmed that the biggest risk factor that they looked for was mental health issues. They then looked for signs of physical ailments and for low literacy, numeracy or financial capability.
Another factor identified was a lack of financial resilience. In M2L’s research, over 50% of advisers said that those customers who had substantial financial worries were more likely to be identified as vulnerable.
Although some advisers currently consider that they have low numbers of vulnerable customers, it was noted in the M2L research that levels are likely to increase in the future on the basis that we have an ageing population and as people get older, health (including intellectual ability) tends to deteriorate.
When asked how they assessed for vulnerability, 87% of advisers enquired with customers about their personal circumstances and, if they suspected vulnerability, 82% would follow up by testing customers on their understanding of the products on offer.
In 2017, £57bn of lending was provided to small businesses. Currently, commercial lending is unregulated. A recent report produced by a Treasury select committee of MPs looking at how banks treat small business customers has concluded that this "regulatory black hole" must be filled and that there should be more adequate protection for SMEs.
The 64 page report recommends that commercial lending should be an activity regulated by the Financial Conduct Authority (the FCA) and that a specialist tribunal is set up to resolve complex disputes between banks and small businesses. However, the FCA believes that a small business tribunal is not the way forward. Instead, it considers that the Financial Ombudsman Service (the FOS) should have stronger powers. It is felt that by strengthening the FOS's powers small businesses would be enabled to challenge the behaviours of big banks.
The FCA also recommends that the use of the FOS for small businesses is extended and that compensation should be uplifted from £150,000 to £350,000. The select committee agrees that this is sensible but does have some concerns over whether the FOS has the capacity and capability to deal with more complex disputes. However, UK finance agrees with the FCA and is in favour of strengthening the FOS, but recommends lifting the compensation limit to £600,000.
For further information on this, read our recent articles:
A recent report on 'Intergenerational Mortgages', commissioned by the Building Societies Association, highlights the challenges faced by young people trying to get onto the housing ladder.
The report explains that Government schemes have helped to a certain extent. For example, the Help to Buy equity loans scheme (HTB), launched in 2013 and intended to run until 2021, has helped purchase almost 170k properties with 80% of these assisting first time buyers.
Whilst there is a general assumption that HTB has benefitted thousands, concern has been raised that those who are not the intended beneficiaries of the scheme are taking advantage of it.
As the Government looks to extend the scheme, a number of brokers have proposed restricting HTB to first time buyers only, or limiting the size of the loan and putting an income restriction in place (below £75k in London and £60k for the rest of the country.)
The report also shows that, crucially, many lending products in the market currently rely on the Bank of Mum & Dad (BOMAD), primarily as a way of funding a deposit for first time buyers. Around a third of first time buyers rely on this source of funds and the forecast is that this will continue to rise in the future.
The report recommends that lenders should continue to innovate with the products they can offer, by building on the support available from BOMAD. It also suggests that building societies should continue to monitor developments in private equity loans and the potential products that could materialise as a result of partnering with the private sector. Finally, the report recommends a number of regulatory and governmental actions.
In October this year, the Government issued a call for proposals on developing Private Shared Ownership and other innovative routes into homeownership to further assist first time buyers. Proposals are due before 1 February 2019 and are sought in three categories:
The hope is that Shared Ownership will contribute towards creating a housing market that works for everyone, including first time buyers.
Concerns have been raised that sufficient advice is not provided by advisers in relation to later life lending, which could lead to regulatory issues and Financial Ombudsman Service claims. It is considered paramount that advisers are fully qualified to consider all later life approaches, which include equity release, retirement interest only (RIO) and other interest only products.
Under the new rules and regulations, advisers must give suitable consideration to all later life products. In March this year, the Conduct of Business Sourcebook was updated to require that advisers inform a customer seeking an RIO as to whether a lifetime mortgage is in fact available and, if so, whether that product is more appropriate. Furthermore, the FCA rules state that all equity release sales must be advised. If advisers are not fully qualified themselves to provide this advice, they must refer their customers to a suitable third party.
Given that £971 million was unlocked by homeowners in the second quarter of 2018, it is important that advisers take heed and ensure that they achieve a suitable balance in their later life advice.
Lords Reed, Sumption and Kitchin have refused permission to appeal in the case of Green v SPML because the application does not raise a point of law.
The position in relation to the application of the Equalities legislation therefore continues to remain clear in the context of a lender enforcing its security.
The Court of Appeal decision restricts mortgagors from seeking to defend repossession actions based on disability discrimination if a lender has refused to offer an interest-only mortgage as a means of forbearance.
It also clarifies that lenders are not obliged to consider offering interest-only mortgages to all mortgagors in financial difficulties.
House purchase activity in Northern Ireland has continued to grow steadily in Q3 with lending to first time buyers remaining the largest sector.
The Q3 figures show over 2,700 new first-time buyer mortgages completed, along with 1,800 new home-mover mortgages and 2,200 new homeowner re-mortgages.
These figures show a steady increase from Q3 last year and reflect a continual growth in a healthy Northern Ireland mortgage market.
However, these figures highlight the increased demand for housing within the region as Derek Wilson, chair of UK Finance's Northern Ireland Mortgage Committee, points out: "These figures underline the importance of boosting housing supply to meet this growing demand".
A recent decision of the appeal court in Edinburgh involving one of the clearing banks provided further evidence of the need to update the law of prescription in Scotland.
The case concerned a term loan provided to purchase buy-to-let properties. The bank wrote to the pursuer in February 2010 purporting to terminate the loan facility and demanding repayment of the loan. The customer contended that in doing so the bank was in breach of contract. The customer issued court proceedings for damages against the bank in April 2015. The court required to decide whether the customer's damages claim had prescribed. In Scotland a claim is extinguished (becomes time barred) five years from the date loss occurs.
The pursuer contended that he did not suffer loss and therefore the prescriptive period did not commence until he had completed the sale of the buy to let properties in April 2015. The sale proceeds were used to repay the loan funds. The appeal court rejected this argument and held that loss occurred when the loan facility was terminated and not when the properties were sold around two months later. As court proceedings were commenced more than five years after the loss had occurred the claim was time barred.
While this decision will be of interest to lenders in providing greater clarity on the question of when loss occurs, it reinforces the complexities which still too frequently arise when dealing with prescription. Helpfully greater clarity will be introduced shortly following the passing of the Prescription (Scotland) Bill 2018 by the Scottish Parliament.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.