Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in retail mortgage lending and regulation.
This month in summary:
Focus on Scotland
On 28 September 2018 the Citizens Advice Bureau (CAB) lodged a super-complaint at the Competition and Markets Authority (CMA) regarding customer loyalty. It states that customers who remain loyal to providers of mortgages, savings, insurance, mobile and broadband contracts are, on average, paying £877 extra a year over the market rates for these services.
From a mortgage perspective the complaint centres on fixed rate mortgage deals which, when they expire, revert to a lender's more expensive standard variable rate. Savvy customers will switch deals to avoid this and it is often older customers or customers with mental health issues which fail to switch and become liable for higher charges.
The CMA will have 90 days to decide whether there is an issue and, if so, how they intend to deal with it.
This is the fourth super-complaint lodged by the CAB with previous complaints on doorstep selling, PPI and cold calling all having been upheld. Given this success rate, it is likely that this complaint may result in protective legislative or regulatory changes in relation to mortgage and savings accounts.
We will report again once the result of the complaint is released by the CMA.
UK Finance reports that over £500m has been stolen in scams from UK bank customers in the first half of 2018. UK Finance also reports that £145m was lost through authorised push payment scams (APP), and £358m was lost due to unauthorised fraud.
The most common scams in the UK are purchase scams, whereby victims are coaxed into believing they are paying for a service and/or product. These scams account for around two thirds of reported cases. A total of £19.3m was stolen across 21,483 cases.
In the first half of 2018, 3,866 cases of impersonation scams were reported. In these scams, victims are tricked into transferring money to the scammer portraying themselves to be from the police, a bank and other organisations. The average loss in police and bank scams is £11,402, and £7,504 in other impersonation scams.
However, there has been a drop by 2 per cent to £358m in unauthorised fraud, where victims do not provide any authorisation for the transaction.
Unlike victims of unauthorised fraud, most victims of APP fraud are not refunded by their banks as current legislation holds victims responsible for losses where they have authorised payments. The finance sector is focusing on developing an industry code to allow victims of APP to be reimbursed. However, Gareth Shaw, money expert at Which?, believes that, to date, "banks have not done enough to protect their customers".
New guidelines for how banks and insurers manage climate change are being prepared by the Bank of England (BoE) following a survey conducted by the BoE's Prudential Regulation Authority (PRA). In its survey, the PRA found that whilst 60 per cent of the banks surveyed consider climate change to be a short-term financial risk, only 10 per cent consider the long-term effects.
The PRA survey also identified the following:
Mark Carney, the central bank governor, believes that banks need to focus more on identifying and measuring the financial risks arising from climate change. On average, the surveyed banks had a four-year planning horizon, which Mr Carney deems too short to consider the climate risks.
Whilst regulators are contemplating more rules around climate risk disclosure, around 500 companies with more than $100tn worth of assets, including investment bank Goldman Sachs, have entered into voluntary disclosure regimes through the Task Force in Climate-related Financial Disclosures. The PRA survey identifies the task force guidelines as an example of good risk management.
The mortgage market has continuously changed over the past year and has seen many different lending patterns. Nevertheless, the market has remained sustainable.
In August 2018, the first-time buyers mortgage market hit its peak with 35,000 mortgages completed, 2% higher than last year. In the meantime, the number of new mortgages being completed declined by 2.3% and remortgages dropped 0.3%. UK Finance director of mortgages, Jackie Bennett, confirmed that ‘overall house purchase completions remained stable with the support of first-time buyer activity’.
Whilst it is reported that remortgaging rates have dropped, the number of remortgage approvals has in fact risen by 9.2%. It is house purchase and other secured borrowing approvals that have lowered by 4.3%, causing the overall decrease. UK Finance have said ‘remortgaging continues to dominate’ despite the spike of first-time buyer mortgages in August.
There has also been an increase in the number of lenders in the 95% loan-to-value mortgage market, which continues to rise. There is much more competition and as a result the average rate of two and five-year fixed rate mortgages have reached their lowest level since 2007. The recent base rate rise doesn't seem to have had an impact on high LTV rates, and – together with a rise in lenders – this has created a wide variety of choice for buyers (particularly first time buyers).
Overall the mortgage market remains largely the same, but general lending growth has dropped as households are borrowing less money and mortgage approvals for house purchases have decreased.
On 5 October 2018, the Finance and Leasing Association (FLA) published the new business figures on the second charge mortgage market as of August 2018. The figures show new business growth in six out of eight months so far in 2018, with a total of 2,100 new agreements in August 2018.
FLA Head of Research and Chief Economist Geraldine Kilkelly noted there was a 3% increase in the number of new agreements so far in 2018 and therefore a single-digit growth is expected in 2018 as a whole.
Although the value of new business decreased by 2% to £92m in August 2018, in the 12 months to August 2018, it appears there was an overall 2% increase to more than £1bn.
This growth comes despite the Financial Conduct Authority's (FCA's) findings back in March 2018 of 'significant issues' with the second charge lending market. The FCA required firms to review their processes by 1 May 2018 in light of concerns over financial crime implications and vulnerability to fraud. This is because the FCA was unable on some occasions to identify how a lender had carried out affordability stress tests and found that lenders seemed too ready to accept supporting documents without carrying out the appropriate due diligence or authenticity checks.
Scribeless have launched a service to provide 'handwritten' letters. They use artificial intelligence to learn a person's handwriting. A robot is then used to write a letter in fountain pen replicating the person's writing and signature. Scribeless state that this gives a personal touch to a letter.
The current technology is aimed at writing thank-you letters and invitations, but could lead to unintended uses, for instance, forging a letter from a customer purportedly giving authority to a lender to discuss a mortgage account with a third party. A lender could be hard pressed to spot that such a letter was not a genuine letter from a customer based on the letter and signature alone.
Whilst the technology is still in its infancy and may not ever become main stream, it does highlight that lenders should however ensure that they have robust policies in place for identifying and dealing with new technology.
In October, the Justice Committee of the Scottish Parliament issued its report on Alternative Dispute Resolution (ADR) in civil cases. The report followed two evidence sessions in February and March during which the Committee heard that ADR was not widely used in civil litigation in Scotland.
Whilst the Committee has not recommended mandatory participation in ADR, it did emphasise the importance of ensuring that ADR is adopted more widely as an alternative to court. The Committee also recommended running a pilot exercise requiring parties to attend mandatory dispute resolution information meetings and the need to consider legislation similar to the Irish Mediation Act.
While there is no guarantee the recommendations will be adopted, they are consistent with the Scottish Government's aim to improve access to justice whilst driving increased efficiency through the Scottish justice system. It is apparent that there will be a greater focus in the coming years on the need for parties to participate in alternative dispute resolution processes in civil proceedings pursued in the Scottish courts.
The Scottish Civil Justice Council is also currently involved in a Rules Rewrite Project which aims to rewrite all of Scotland's civil court rules. Mediation and other forms of ADR are being considered as part of this project and it will be interested to see to what extent they are incorporated in the new rules.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions