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Busy lenders' monthly round-up - January 2017

Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in mortgage litigation and regulation.

This month in summary:

News

Lending

Regulatory

Focus on Scotland


Green Investment Bank may float instead of sale to a single bidder

The government may float the state owned Green Investment Bank (GIB) as an alternative to an anticipated sale to Macquarie, the Australian investment bank.  It was understood (but not officially confirmed) that Macquarie was the government's preferred bidder.

The GIB was established by the government in 2012 to increase the UK's investment in environmentally friendly infrastructure and was capitalised from public funds.

In 2015, the government announced plans to privatise the GIB, to provide the bank with access to further funds. In October 2016, Macquarie appeared to emerge as the frontrunner to acquire the GIB. However, concerns have arisen over the GIB's ability to court private funding and retain its Green credentials. This appears to have given the government pause for thought and ministers have been invited to comment on the future of the GIB, including the potential for flotation as an alternative to a sale to a single bidder.

Whilst the future of the GIB remains uncertain, the story so far supports the narrative of state backed banks turning a profit for the taxpayer under the right conditions.

Rental income fall creates challenges in the prime rental market

According to a report by Savills UK, rental income from prime properties in London fell by 5.1% in 2016 and rents in the ‘commuter zone’ fell by 0.9%.

The prime rental market in London currently has an unprecedented amount of stock available to let in part due to the completion of numerous new build properties, a flood of properties being put on the market by those who bought before the April stamp duty changes and a growth in a number of ‘accidental landlords’ created in the aftermath of the EU referendum.

The prime rental market outside of London also shows similar trends with evidence of an increase in ‘accidental landlords’ adding to available rental stock as well as weak demand from corporate tenants. However despite these trends, there continues to be a consistent level of demand for family and country houses let to those commuting into London and a strong demand for smaller houses and flats typically let to young professionals.

Further Right to Rent provisions when letting property

There are further 'right to rent' provisions in the Immigration Act 2016.  Since 1 December 2016:

  • It is a criminal offence to rent a property in England to someone not entitled to remain in the UK.  The penalty is up to five years in prison.  An agent (such as a receiver) could be liable if a tenant's right to reside in the UK expires whilst the agent is managing the property but fails to take any action.
  • In English tenancies there will be an implied term that the tenancy can be terminated if the tenant no longer has a right to rent. There is a new ground 7B for a landlord to bring an assured shorthold tenancy to an end after receiving an official notice that the tenant is disqualified from occupying the property.

A requirement for landlords to check that a tenant has a right to remain in UK came into force almost a year ago in February 2016.  A landlord can be fined up to £3,000 for not doing so.

These changes will primarily be of interest to receivers and, given the criminal sanction, it is imperative that receivers check tenants do have the right to remain at the property and note any dates when a tenant's right to remain expires.  TLT can provide advice on individual cases where required.

Department for Work and Pensions switches bank for Support for Mortgage Interest Payments

Throughout January and February 2017 the Department for Work and Pensions (DWP) is changing the bank it uses to send customers' Support for Mortgage Interest (SMI) payments to lenders. SMI payments are made where a mortgage customer is in financial difficulty and have claimed benefits from the DWP.

The bank will change from HSBC to NatWest so sort codes and account numbers will change.  As a result, mortgage customers may find their SMI payments are delayed, rejected or returned.

Below are the timescales issued by the DWP in relation to the account change:

  • 9 - 10 January 2017 onwards – NatWest began the migration of SMI payments for qualifying mortgage customers on Employment Support Allowance.
  • 6 February 2017 onwards – start of migration of SMI payments for customers on Job Seekers Allowance and Income Support.
  • 13 February 2017 onwards – migration of SMI payments for customers on Universal Credit will begin.

Payments made by the SMI scheme are referred to by the DWP as Mortgage Interest Direct (MID).

TLT's Customer Contact Team who assist with the rehabilitation of accounts in arrears have been briefed on the changes and will flag any cases where it is believed a SMI payment has not been received due to these changes.

HSBC to provide redress for historic debt collection

The Financial Conduct Authority (FCA) announced on 20 January 2017 that HSBC had voluntarily agreed to pay around £4 million for the historic debt collection practices of two of its subsidiaries, HFC Bank Ltd and John Lewis Financial Services Limited (JFSL).

When, having fallen into arrears, customers of HFC and JFSL were referred to the firms’ solicitors, a ‘debt collection charge’ was applied to the account. However, the FCA considered that the charge "did not reflect the actual and necessary costs of collecting the debt".

HFC and JFSL stopped adding the charge in November 2009 and reversed the charge for live accounts in 2010.

The FCA’s review of HFC and JFSL’s practices was prompted by a complaint to the Complaint Commissioner.

Consumer credit continues to grow

Bank of England statistics show continued growth in the consumer credit market. Lending grew by 10.8 per cent in the year to November 2016, representing the strongest twelve-month growth rate since October 2005.

The growth is in part explained by the changing way in which people in the UK own cars, with a significant proportion of the consumer credit economy relating to vehicle finance.

In a symptom of the perceived heath of the UK consumer credit economy, Lloyds Banking Group is to make its first major acquisition in recent times with a £1.9 billion purchase of credit card business MBNA.

Digital mortgage adviser to process half a billion in 2017

Digital mortgage adviser Habito (with its current headcount of just 25) expects to process half a billion pounds in mortgage applications by the end of the year, having acquired £5.5 million in funding from fintech stalwart Ribbit Capital.

Habito is developing a real-time, lender approval system to significantly reduce the time spent by consumers on the online mortgage application process, which it expects to deploy mid-way through the year.

Habito has already processed some 20,000 applications reflecting lending of approximately £50 million since it launched in September 2016, using algorithms to match the customer's needs with the range of products available on the market.

Housing White Paper and market Round up 

The eagerly anticipated Housing White Paper has been welcomed by stakeholders and some housing market commentators. The proposal to substantially increase new-builds through preventing land banking, speeding up planning approvals, releasing more publicly owned brownfield sites and encouraging new methods of house-building are designed to tackle the housing shortage which has been restraining lending activity for many years.

Changes in policy and regulation, together with political and economic uncertainty are central to the CML's round-up of the UK mortgage market in 2016 and their forecasts for 2017 and beyond. 

The CML note that the housing market ended the year on a relatively positive note, with gross lending increasing by 12% on 2015 to £246 billion, the highest figure since 2008. However, such an increase is not forecast in 2017. 

Uncertainty following Brexit means buyers and sellers are waiting for a clearer view of the economic road ahead; combined with high transaction costs and relatively low house price inflation, supply has reduced. Demand is expected to remain constant and potentially increase with government focus on continued assistance for first time-buyers.  

Re-mortgage activity is likely to remain buoyant in light of ongoing low mortgage rates. 

A continued decease in buy-to-let volumes is forecast following the April 2016 stamp duty increase and also tax relief changes from April 2017. Lenders are also tightening affordability criteria ahead of PRA stress tests. Limited or slower growth to landlord’s portfolios is therefore expected, however, the full impact will not be known until the changes are in place. The White Paper's focus upon the rental sector, by introducing longer tenancies for families and legislation around agents arrangement fees will also undoubtedly have implications for the buy-to-let market. 

Whist the CML links much of the uncertainty to Brexit it does note that the mortgage market is relatively isolated compared to other parts of the economy as most activity is driven domestically and demand remains high. All things considered, the CML do not expect to see national house price falls over the next two years.  


Standard Financial Statement – Application Form for Membership Code now available

The Standard Financial Statement (SFS) is a tool designed by The Money Advice Service to summarise a person’s income and outgoings, along with any debts they owe. The SFS will be launched on 1st March 2017 with the intention that it will become the only format used by the debt advice sector, replacing the many alternative income and expenditure forms in place.

Any organisation wishing to use the SFS must apply for a membership code which will provide access to related materials and guidance. The application form for membership is now available. For further information in relation to the SFS or applying for a membership code, click here

TLT LLP will shortly be applying for a membership code to enable our Customer Contact Team to use the SFS when discussing affordability with our client’s customers’.

European Account Preservation Orders come into effect in many EU Member States

Creditors seeking to freeze bank accounts held in other EU states will now be able to do so more easily.

A new European Account Preservation Order (EAPO) can be imposed by courts in participating member states from 18 January 2017. A single order can freeze accounts in any member state.

The UK has not opted into the new Regulation so is not bound by the EAPO process; however, lenders with operations in participating member states will be subject to the EAPO regime, and creditors to debtors with accounts in participating members states may wish to consider an EAPO as a strategic tool.

Time bar – knowledge that "something has gone wrong" is not needed

The Court of Session has ruled in Clark v MFPT Accountants, that knowledge of the defenders' negligence was not needed on the law of prescription (time bar) in Scotland.  This helps clarify when lenders (for example) can sue for negligent advice/valuations.

The Pursuers (claimants) alleged that negligent tax advice from accountants had caused them to suffer loss and that the limitation period ran from when they became aware of the negligence.  The Defenders argued that the claims were time barred because the prescriptive period ran from when the loss was incurred. 

The Court decided that the prescriptive period began when the Pursuers incurred legal costs on the basis of the Defenders' negligent advice.  Knowledge that "something has gone wrong", i.e. the Defenders' negligence, was not needed for the limitation clock to start ticking.  Therefore, part of the Pursuers' claim was time barred.

In recent years, many lenders have made claims against negligent surveyors and solicitors to recover losses from repossessions that left shortfalls.  The traditional understanding of time bar in Scotland was that the limitation clock began ticking on the date of repossession.  But since the 2014 Supreme Court decision in ICL Plastics, it has become apparent that earlier dates, such as when the borrower first defaulted on repayments, may be the correct date.  The uncertainty as to the current position therefore creates both risk and opportunity for both claimants and insurers.  When in doubt, affected parties should seek legal advice urgently to prevent potential claims becoming time barred.

Contributors

Ben Hanham

James Tithecott

Russell Kelsall

Duncan Martin

Sam Storey      

Michael Seddon

Emma Hutchison

Alexander Trimble

Sam McCollum

Emma Kirkbride

Catherine Zakarias-Welch

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions


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