The latest news and developments in retail mortgage lending and regulation.
This month in summary:
Focus on Scotland
Focus on Northern Ireland
Following our update on the end of LIBOR, the Bank of England and the FCA have issued a joint recommendation that firms should consider switching from LIBOR to SONIA from 2 March 2020 for sterling interest rate swaps.
SONIA based derivatives market is becoming increasingly buoyant with the traded notional value for over-the-counter SONIA derivatives each month now broadly equivalent to the notional Sterling LIBOR trades in the same period.The FCA's recommendation comes just days after Reuters reported that many banks may not implement the software changes needed in time to meet the October 2020 deadline for ceasing to write new LIBOR based loans.
Loan management software suppliers Finastra and FIS both indicated that some of their clients would not meet the deadline and smaller lenders have been slower to upgrade their systems. Finastra, who published their SONIA upgrade in November 2019, say only 25% of affected clients have currently upgraded. Senior principal project manager Robert Downs thinks that it could take 6 -18 months to ensure that the upgrade is fully tested and integrated within a lender's internal systems.
In a watershed shift in regulation, the FCA has upheld decisions to impose financial penalties on two CMCs in the first reported cases under its new regulatory regime. The FCA's new Claims Management Regulation Unit took responsibility for management of CMCs from 1 April 2019.
Manchester-based PPI firm Hall and Hanley Limited (HHL) was issued a £91,000 fine in January for sending marketing text messages about PPI claims to consumers' mobile telephones without checking it had consent to do so. The firm was also found to have copied client signatures without authorisation. This comes after the ICO also HHL £120,000 for millions of nuisance texts. The firm is now in liquidation.
In December, Professional Personal Claims Limited (PPC) was fined £70,000 for misleading consumers and failing to present accurate and specific claims to banks. The logos of major banks were prominently displayed on its website and marketing materials. This meant many consumers believed they were submitting claims to the banks directly rather than through a CMC for a fee. PPC submitted identical FOS questionnaires to banks with identical factual allegations and without client-specific evidence.
We think this crackdown on unethical CMCs offering poor service is welcome news for the industry. The drive to improve the professionalism of the CMC sector is an important recognition that while it plays an important role, vulnerable consumers must be protected. The FCA decisions are an important message to the wider industry and a reminder that CMCs must act with "integrity and due care, skill and diligence".
In line with its overarching strategy objective of ensuring market functionality and consumer protection, the FCA has issued civil proceedings against a number of firms alleged to have carried out unauthorised deposit taking.
The firms are accused of accepting money from the public for projects such as forex trading and crypto-assets. Proceedings have been issued against firms and senior individuals who worked at these firms, with £1.3m assets frozen. The FCA has also sought an order preventing the defendants from carrying out activity in the future. A further court date is awaited.
New rules proposed by the FCA will ensure all firms have to set a single easy access interest rate across all easy access accounts, including cash savings and ISA accounts.
The regulator wants to prevent firms gradually reducing interest rates over time and introduce healthier competition between firms for customers. We hope that these rules will see interest rates for these accounts increasing and some protection for those customers on the lower interest rates.
Longstanding customers are seen as being worse-off in the current system. The FCA aims to shift towards clarity and easier identification of better rates. The proposed rules will see firms publishing data every six months on the rates they offer, making it easier to compare rates over the lifetime of the account and different banks.
A police department in the US has highlighted an important new issue in the fight against fraud. In a viral Facebook post, the department showed that abbreviating 2020 to '20' offers fraudsters the opportunity to amend the date by adding two digits to the end. This allows them to change it to any date in this century.
No such warnings have been issued in the UK by the police or any other body. Many think this is not a new issue because the abbreviation '19' for '2019' could be amended to dates in the last century. But the possibility of changing the date by a year or two either way could make the fraud more difficult to detect than a document amended from 2019 to 1999. The US site Slate.com said that although altering dates is possible it doesn't make this kind of scam any more likely. There are no reported cases yet.
Ira Rheingold, from the National Association of Consumer Advocates in the US said:
"There's a lot of consumer fraud that goes on every day that I worry about a lot more than this."
Rheingold believes the advice has gone viral because it's easy to understand, whereas other forms of fraud are more complex and wouldn't have the same impact on a Facebook post.
Whether you consider the story to be hype or good advice, it is a useful reminder to be vigilant and always double check details when completing legal documents.
2020 could see a surge in purchases for the buy-to-let sector in England and Wales.
The property market suffered in 2019 due to Brexit uncertainty and the lack of a majority party in control of Parliament. The clarity provided by the result of the December general election has led to a rise in house prices. This 'kick start' to house sales is expected to see a lot of purchases by buy-to-let landlords.
Mortgage Strategy has reported that one in seven buy-to-let landlords are seeking to expand their portfolios in 2020. The majority of these purchases are expected to be financed by buy-to-let mortgages. The profile of the average buy-to-let purchaser is due to change, with small investors more likely to be priced out by recent increases in Stamp Duty Land Tax. Instead, the focus is expected to be on professional investors who have the capability to purchase multiple units which receive favourable tax treatment.
These predictions should encourage lenders to review the products they currently offer to buy-to-let purchasers. With mortgage rates still at a record low, lenders need to ensure their products remain attractive in a competitive market so they can benefit from the predicted increase in buy-to-let activity.
Before mortgage advances are released, conveyancers provide a certificate of title (COT) to the lender. This certifies that they have checked the security meets the lender's instructions and that they have identified the customer. The conveyancer also gives undertakings to the lender about completing and registering the lender's security. The details are set out in a long form COT.
In practice though, most lenders use a short form COT which makes reference to the longer version without reproducing it. This allows the COT to fit on a single sheet.
Until recently the Law Society's short form COT contained a reference to paragraph IB3.7 of the Solicitors Regulation Authority (SRA) code of conduct. In November 2019 the SRA replaced the code of conduct for solicitors and paragraph IB3.7 does not exist in the updated code. This paragraph related to conveyancers acting for both lenders and customers as long as there was no conflict of interest. There is no comparable provision in the new code of conduct beyond a general duty to avoid conflicts of interest.
We have flagged this issue to the Law Society and we understand that the short form COT has now been updated. Lenders should make sure that their own short form COTs reflect the updated wording.
As we reported last month, courts are struggling to manage the volume of claims, leading to a high number of delays. Research from the Residential Landlords Association (RLA) shows that landlords are encountering significant postponements when seeking repossession of their premises. The RLA focused on possession claims for "legitimate reasons" such as rent arrears, anti-social behaviour and property damage. The research found that:
Current wait times are significantly higher than those anticipated in the Civil Procedure Rules. The original estimation was that residential possession cases of this type should be disposed of in a 10 week timescale.
The RLA has urged the government to consider the implementation of a housing court. This would allow cases to be dealt with expeditiously by a Judge who is an expert in the area.
David Smith of the RLA commented: "The RLA was delighted when the government consulted on its proposal for a housing court a year ago but nothing has happened since. It needs to get on and get it set up for the benefit of landlords and tenants alike."
According to UK Finance, November 2019 saw the numbers of both first time buyers and movers fell by 10% compared with the same period in 2018. Similarly, those remortgaging to new products fell by 12%.
By contrast, those remortgaging to secure extra funds actually increased by 5.7% for the same period. Assuming that the additional funds for improvements are to their current property, it seems that homeowners may be willing to make the best of what they have.
The figures may be particularly impacted by the time of year. November 2019 was clouded by economic uncertainty given the impending general election, Brexit and other economic factors. The mortgage industry seems united in a view that this uncertainty dissuaded buyers and movers from taking the plunge.
It is anticipated that confidence will return to the market in the post-election period. Those who have deferred the big decisions to move or purchase can finally press ahead.
The gambling industry is increasingly under scrutiny from both industry bodies and the government. It seems the Conservative Party's manifesto pledge to review the Gambling Act 2005 may become a reality sooner than anticipated.
On the 14 January the Gambling Commission announced that from 14 April 2020 there will be a ban on gambling with credit cards. This is because of the estimated 800,000 gamblers using credit cards. 22% of these people are what would be considered problem gamblers.
The ban was suggested by the APPG on Gambling Related Harm in their interim report on online gambling published in November 2019. The programme of work for the year includes the final report of their online gambling inquiry, which is anticipated in the coming months. They will also work to ensure that their other recommendations from the November report are implemented.
The credit card announcement has sparked further debate around whether more should be done in terms of regulating credit cards for problem gamblers who are prone to get into debt. James Moore writing in The Independent suggests this could come from the FCA. It remains to be seen whether there will be further regulation for the card and payments industry but we look forward to the publication of the APPG's final report.
For more information on the review of the Gambling Act and the APPG on Gambling Related Harm's 2020 agenda see our legal insight.
The Scottish Government is exploring a number of initiatives to help address the climate emergency in line with its target to reach 'net zero' emissions by 2045. To reach this ambitious target Scotland will either need to refrain entirely from using greenhouse gasses such as carbon dioxide or offset any such emissions through activities like planting trees.
New regulations are currently being developed by the Scottish Government which will require all new build homes to use renewable or low-carbon heating from 2024. These houses could use heat pumps instead of boilers to improve energy efficiency and reduce the carbon footprint of new build homes. The regulations will coincide with a £30 million investment in renewable heating projects.
This project is also being expanded to non-domestic buildings. Renewable and low-carbon heating systems will be introduced for projects where consent to build is given from 2024.
Paul Wheelhouse, Energy Minister for Scotland, said: "We will ensure that new homes and buildings across Scotland meet the challenge of the climate emergency, combining the action we need to take on climate change with our ambition to provide affordable, warm homes."
The First-tier Tribunal for Scotland (Housing and Property Chamber) has awarded damages in favour of a tenant for unlawful eviction for the first time.
While the tenant was not at home, the landlords in question changed the locks and removed their belongings. At that point, no formal steps had been taken to bring the tenancy to an end despite the tenant being in arrears.
The landlords accepted that they had entered into possession without a Decree (court order) but argued that they had reasonable grounds to suspect that the tenant had left. The main submission was that the property appeared abandoned as no valuable belongings remained. However, it was found that the volume of possessions removed by the landlords contradicted this claim.
The tenant's solicitors produced a surveyor's report that found the property to be worth £18,000 more if sold with vacant possession than with a tenant in place. The landlords were not able to procure a report refuting this in time and damages were awarded in the fairly substantial sum of £18,000.
Lenders often find themselves with similar decisions to make and this case highlights the importance of exercising caution. If there is ever doubt as to whether a property is occupied, it is worth obtaining an expert's opinion, such as an occupancy report by Sheriff Officers. In some circumstances, it may be appropriate to adopt a 'belts and braces' approach and obtain a Decree to mitigate risk.
The Assembly convened to elect representatives on 11 January 2020. This marked the first time leading political parties re-entered devolved government following three years of deadlock.
Prior to the Assembly's collapse in January 2017, the relationship between the Democratic Unionist Party and Sinn Féin had become strained over matters such as marriage equality, women's reproductive rights, and the Irish Language Act.
A new draft deal entitled 'New Decade, New Approach' was published on 9 January 2020. This included proposals to amend the Northern Ireland Act 1998 to include provisions for Irish language and an Office for Identity and Cultural Expression.
The Agreement proposes to focus on establishing a more sustainable Assembly. A priority of the deal is to increase investment into social housing. The deal aims to stop reclassification of housing associations, ensuring the continuation of new social housing. This should increase the borrowing capacity of the associations, which will impact positively on lenders.
Other elements of the draft deal reformation of the health service and education system and measures to strengthen transparency in the Assembly and Executive. A timetable for these new strategies will be published within three months.
These developments pave the way for Northern Irish politics may be able to progress once more. There is now a promise for an injection of financial support which will help develop infrastructure and build the Northern Irish economy. This is an exciting time for the Northern Irish market, and will hopefully present opportunities for lenders in a more settled and sustainable economy.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.