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Busy lender's monthly round-up - May 15

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

This month in summary 

Mortgages

  • Fall in second charge mortgage repossessions
  • Increase in buy-to-let purchases with sitting tenants
  • Mortgage lending on the rise
  • Home repossessions continue to fall
  • Update on the European Mortgage Credit Directive
  • Latest Scottish Help to Buy Scheme almost fully subscribed

Economic outlook

  • Will the Conservatives help eradicate negative equity in NI?

Other news

  • PPI still dominating lender complaints
  • BBA review on competitiveness of UK and EU referendum
  • Increase in peer-to-peer lending
  • Corporate and personal insolvencies back to pre-2007 levels
  • Monthly rents rise at fastest rate for five years
  • Scottish house prices at 'highest rate' since 2007

Mortgages

Fall in second charge mortgage repossessions

The number of second-charge mortgage repossessions has dropped by almost half since the first three months of last year, according to the Finance and Leasing Association.

Data from the organisation indicates that only 70 properties were repossessed in January, February and March 2015, the lowest recorded since at least 2010.

Fiona Hoyle, head of consumer credit at the Association said firms in the sector were taking a conciliatory approach and offering a range of forbearance tools to keep repossession a last resort.

"Second-charge repossessions are continuing to fall as second-charge lenders continue to do all they can to help customers in financial difficulty," she said.

The drop in second-charge repossessions may also reflect the lack of equity in some parts of the UK which have still not recovered from the property slump from the last financial crisis.

Increase in buy-to-let purchases with sitting tenants

Countrywide, the estate agency, valuation, lettings and mortgage services business, reports that the proportion of properties bought by landlords with a sitting tenant has reached the highest level since 2005. In 2014 some 11% of all rental properties bought by a landlord are said to have come with a tenant in situ.

A quarter of tenants had leases lasting two years or more, compared to just 5% of tenants overall.

Countrywide says there are signs that landlords are increasingly looking to buy from other landlords where there is already a tenant occupying. This is particularly the case in London and the south east of England, where an immediate income from a tenant can be attractive to an investor as it can help make up the generally lower yield of properties in these parts of the UK.

Mortgage lending on the rise

Figures from the Council of Mortgage Lenders (CML) showed an increase in mortgage lending in March 2015. Approvals for first time buyers were 21% higher than they were in February 2015, with lending to home-movers up 14% for the same period.

Paul Smee, director general of the CML, said, "It was a slow start to activity in the first couple of months of 2015 but the market started to get out of the dip in March, a trend that we think will continue as the year goes on."

Remortgages and buy-to-let loans were also up 19% and 12% respectively from February 2015. The record low mortgage prices are incentivising owners to reassess their existing loans and encouraging landlords to look for new opportunities.

Home repossessions continue to fall

The number of home repossessions and home owners falling into mortgage arrears has continued to fall in the first quarter of the year, according to the latest figures from the CML.

During the first quarter of the year, there were 113,900 mortgages in arrears with only 24,400 (approximately 22% of all mortgages) being classified in the most severe arrears band (arrears totalling more than 10% of the balance). 

This is the smallest number and proportion of mortgages in the most serious arrears band since 2008.

Meanwhile the number of repossessions was 3,100. This is significantly less than the 4,200 recorded for the fourth quarter of last year and the 6,400 for the same period last year.

CML director general Paul Smee said, "Although complacency would be misplaced, the underlying picture continues to be one of improvement and a continuing reduction in mortgage arrears and repossessions".

It remains to be seen what effect increases to interest rates will have and whether households have prepared themselves for this.

Update on the European Mortgage Credit Directive

Mortgage advisers are required to comply with the European Mortgage Credit Directive (MCD) by 21 March 2016.

The rationale for the MCD is that it will boost, and harmonise, consumer rights across the European market.

Among the key changes introduced by the MCD are:

  • Second-charge loans will be regulated in the same way as first-charges.
  • Some buy-to-let mortgages will become regulated by the FCA under the framework provided by the Mortgage Credit Directive Order 2015. The FCA are expected to publish a policy statement covering the subject later this month.
  • Remuneration policies for advisers cannot be based on meeting a target number or type of loans being sold. A bonus per loan is still allowed.
  • A ban on the tying in/bundling of products, for example, loans with protection. 
  • UK firms are able to passport their services to other EEA States, and vice-versa.

Speaking this month at the Financial Services Expo Manchester, Keith Hale of the FCA stated that the MCD "adds little of consumer benefit" and he signalled that the FCA will be looking to take a “light touch” approach to enforcement. However he warned thorough preparation was required for what could be a "three-year period of flux".

Latest Scottish Help to Buy Scheme almost fully subscribed

The Help to Buy (Scotland) scheme is nearly fully subscribed due to a bumper level of sales reservations, leading to calls from eager homebuyers and anxious builders to provide yet more funds.

The Scottish government set aside £100 million to fund the main Help to Buy shared equity scheme for larger home builders this financial year, but demand has far outstripped supply.

Those seeking to buy houses in this financial year were able to apply to the fund from July last year, however now the money available has been almost used up.

Under Help to Buy, the Scottish government takes an equity stake of between 10% and 20% of the value of the property which can be repaid at any time.

Industry body Homes for Scotland has expressed frustration at the news that cash is running out less than a week after Holyrood published figures demonstrating that demand for the scheme has already resulted in 5,000 sales worth £1 billion.

It has been said that Scottish buyers and builders are now at significant disadvantage to those in England and Wales, prompting calls for an early announcement on a successor scheme.  

Economic outlook

Will the Conservatives help eradicate negative equity in NI?

Housing data group HML have predicted that the newly elected Conservative government could be seen as bringing stability to the economy.

Between 2006-2007, Northern Ireland was the most inflationary property market in Western Europe. House prices represented nine times the median salary and average mortgage payments consumed 64% of incomes. However, when the market crashed in 2008, Northern Ireland was the most severely affected region in the UK, and it has struggled to recover from price falls of up to 60%.

Between 2011 and 2015, the number of homes in negative equity in Northern Ireland increased by 27.4%, affecting an estimated 40% of homeowners. The average shortfall per property is estimated to be £68,000.

Average house prices are now approximately 50% below their 2007 peak and according to the Royal Institution of Chartered Surveyors, are expected to increase by 4% this year to £142,000.

Across the Irish Sea, the situation is markedly different. In London only 1% of borrowers find themselves in negative equity following the surge in the capital's property prices. Will this benefit those in the regions? It is hoped that the Conservatives will boost the economy and reignite the housing market. Commentators are calling for lenders to alleviate the situation for those in negative equity. Suggestions include greater use of assisted voluntary sales and collaboration with local affordable housing schemes. 

Other news

PPI still dominating lender complaints

Payment protection insurance was the cause of two-thirds of all new cases lodged with the Financial Ombudsman Service (FOS) in the last twelve months. More than 550 complaints a day have been received by the service, making up over 60% of its workload. Nevertheless, the peak is considered to be over.

FOS said that the number of new complaints fell to 204,943 in the year to March compared to 399,939 in the prior year.

Banks have so far paid out £18 billion to customers who were mis-sold the product with a loan, following a High Court ruling in 2011. Many cases are solved directly by the banks, but in the case of a disagreement most customers turn to the Ombudsman.

FOS employs more than 4,000 staff to deal with the complaints. In 2014 it resolved 448,000 cases.

BBA review on competitiveness of UK and EU referendum

The British Bankers' Association (BBA) has announced a proposed review into the competitiveness of the UK on behalf of the banking industry. The review has been sparked by speculation that some banks could leave the UK due to uncertainty around the EU referendum.

Some banks have moved operations out of the UK to avoid increases in bank taxes. Others refer to deferred decisions about whether to invest in Britain until after the referendum.

The BBA said that a prolonged period of uncertainty over the UK's membership of the EU and its access to the single market could undermine international banks in Britain. At the same time tough new regulatory measures were said to be making it more difficult for UK banks to compete in global markets.

Following the review the BBA will aim to present the government a series of recommendations in the autumn.

Increase in peer-to-peer lending

The trade body for peer-to-peer lending, P2PFA, has released figures showing £459 million was lent in peer-to-peer loans in the first quarter of 2015, an increase of almost a third. Peer-to-peer lenders are now estimated to have issued loans worth a cumulative £2.6 billion.

Christine Farnish, chair of P2PFA, commented on the strong appetite for peer-to-peer lending from the consumer and the business markets and the need to take this into account with the ISA provisions. She noted that "it is important to ensure a separate Lending ISA is created, a decision that will not only create greater consumer choice, but will avoid any confusion of placing peer-to-peer loans with stocks and shares, a completely different and riskier asset class."

Corporate and personal insolvencies back to pre-2007 levels

The Insolvency Service has reported that the number of corporate insolvencies for the first quarter of 2015 was down to 4,052. This continues the reduction from the peak of the first quarter of 2009 and brings the figures back in line with the first quarter of 2007.

However, commentators warned of the growing number of "zombie" companies, namely companies which are able to service the interest on loans, but are not making sufficient profit to reduce their debt. There is concern that there will be a sharp rise in corporate insolvencies should interest rates rise from the current record low levels over the next 12 months.

Figures from the Insolvency Service showed that personal insolvencies are also falling; 21,000 individuals became insolvent in the first quarter of 2015; a fall of 18.6% for the year and the lowest level since autumn 2005.

Monthly rents rise at fastest rate for five years

Rents across England and Wales have hit a new all-time high of £774 per month, on average (up 4.6% over the last 12 months), representing the fastest annual increase since November 2010.

Eastern England recorded the steepest annual increase, up 12.5% to an average monthly rent of £810.

London has seen an annual increase of 7.8%, resulting in average monthly rent of £1,204. 

However, in Wales rents have fallen by 2.8% from last year's figure to an average of £553 per month.

Increasing rents and the housing shortage will result in a tougher market for would-be first time buyers, with housing charities forecasting a 50% decrease in the number of young adult homeowners over the next five years. This would reduce the percentage of 25-35 year old homeowners by 40%, compared with the position in 2010.

Increasing rents do not appear to have impacted on affordability, with rent arrears down 7.4% compared with this time last year. This is good news for landlords and their lenders, given the reduced risk of rental voids and default.

Scottish house prices at 'highest rate' since 2007

Scottish house prices have risen at their highest annual rate for eight years, according to new figures from the Office for National Statistics (ONS).

The ONS said average prices climbed by 14.6% over the year to March, to hit £207,000, the largest increase since 2007.

The data compared with a rise of 9.4% in England, 7.5% in Northern Ireland and 5.7% in Wales.

As of March, the average UK house price now stands at £273,000.00.

ONS also found that the number of mortgages for house sales in Scotland increased by about 50% between February and March.


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