Welcome to TLT's busy lender's monthly round-up. Each month we summarise the latest news and developments in mortgage litigation and regulation.
The Council of Mortgage Lenders (CML) has estimated that gross lending reached £20 billion in September 2015. This figure represents a 2% increase on gross lending from August 2015 and 12% year on year increase from September 2014.
It is the fourth consecutive month that there has been a significant year on year increase.
Mortgage approvals for house purchases and re-mortgages also saw an increase. The former exceeded 70,000 for the first time since early 2014 and the latter exceeded 40,000 for the first time since December 2008.
Some major UK lenders have attributed the increase to media coverage around the potential rise in the Bank of England Base Rate.
CML economist Mohammad Jamei has commented that "mortgage lending is currently enjoying its best spell since 2008" and he mainly attributed it to low inflation, wage growth and competitive mortgage deals.
New research from the Mortgage Advice Bureau indicates that 96% of homebuyers opted to fix their mortgage rate during September 2015. This is the highest proportion fixing since the Bank of England base rate was decreased to 0.5% in March 2009.
It appears that borrowers are increasingly looking to lock into fixed rates whilst mortgage pricing remains low with a view that interest rates will increase in the near future.
Mortgage lenders are reacting to the change in the market with the average two year fixed rate mortgage rising from 2.68% in August to 2.72% in September 2015 – the first rise after 12 months of consecutive record lows.
The average five year fixed rate mortgage also increased for the first time since August 2015. Conversely, the average three year fixed rate mortgage reached a new low of 3.10 % in September 2015 (down from 3.71% for the same period in September 2014).
Brian Murphy, head of lending at the Mortgage Advice Bureau commented that "Sooner or later, the predictions of an interest rate rise are going to become a reality and some lenders have started to act ahead of this to ensure they are not short-changed. Borrowers should not be too alarmed by September's jump in pricing, as there was only a slight increase and three-year fixed rates continued to fall. All the same, it is a timely wake-up call that these rates are not here to stay forever."
The British Bankers Association and the Council for Mortgage Lenders have this month published data depicting levels of borrowing by individuals and businesses across over 9,000 postcode sectors in Northern Ireland in Quarter 1 of 2015.
The available data demonstrates that BT9 6 was the postcode sector with the highest value of personal loans outstanding, totalling £17,559,465. This urban area of Belfast encompasses Malone, the Lisburn Road and Stranmillis and the value of loans outstanding in this area has slightly increased from £17,324,931 in Quarter 4 of 2014.
BT93 which covers rural areas of County Fermanagh in Belleek, Belcoo and Kesh has been identified as the postcode sector with the lowest aggregate total of outstanding personal loans amounting to £133,250.
BT9 6 has also been identified as the postcode sector with the highest outstanding SME lending totalling £284,678,216 and BT6 5 covering Craigavon and Tullygally had the lowest at £910,744.
The Chancellor, George Osborne, has confirmed that the Bank of England’s Financial Policy Committee (FPC) will be granted powers to intervene in the buy-to-let (BTL) market "as soon as possible".
The FPC has the power to tighten mortgage standards if a credit bubble begins to develop and it appears that similar powers will now be extended to the BTL mortgage sector.
Peter Williams, the executive director of Intermediary Mortgage Lenders was "disappointed" with the Chancellor's announcement as in his opinion, the Chancellor appears to have dispensed with the planned consultation to "assess the evidence for granting powers of direction over buy to let lending."
Steve Griffiths, head of sales and distribution at Kensington Mortgages pointed out that "it would be short sighted to limit landlords' ability to deliver quality rented accommodation when so many people rely on this sector".
It has been another encouraging month for the Scottish housing market.
The latest Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey reveals that house sales picked up across Scotland during September 2015, supported by a modest improvement of the number of properties coming onto the market.
The strong sales trend is broadly reflective of an upturn in demand, which has been visible in the Scottish market for the majority of 2015. In addition, RICS data shows that Scottish house prices continue to rise and are expected to continue to do so until the first half of 2016.
Sarah Speirs, RICS director in Scotland commented that "activity is now picking up which is encouraging and we are seeing slight improvements in stock coming on to the market, although this is still falling short of demand. Against this backdrop we expect prices to move higher over the coming months. "
Another positive sign for the Scottish housing market is the increased sales of million pound homes. The sales figure has more than doubled this year, from 43 homes sold in the first half of 2014, up to 111 in the first half of 2015. According to the Bank of Scotland's Million Pound Property Report, sales are up 158% compared to the same period in 2014.
A report by the economic forecasters and analysts, the Centre for Economics and Business Research (CEBR) anticipates that the average UK house price will increase by nearly £60,000 over the next five years to more than £320,000 by 2020.
Nina Skero, a CEBR economist and the main author of the report explained that "a reduction in the number of properties being put on the market has placed further upward pressure on house prices in some parts of the UK".
Prices are also increasing because of an ageing population, a lack of new homes and the rising costs of moving up the property ladder.
Research also shows that the gaps between the rungs on the property ladder are widening, for example, homeowners in London wanting to trade up from a flat to a terraced house will need to find, on average, an additional £176,000, roughly four times more than they would have required in 2000.
The Bank of England (the Bank) considers that some 4% of UK mortgagors would be vulnerable to an increase in the interest rate.
According to the Bank, households spending more than 40% of their income on debt servicing have historically been vulnerable to rate increases. Whilst the Bank is updating its figures, it currently considers that around 4% of UK mortgagors fall into this category.
The Bank is advising mortgagors to consider the impact of a rate increase and to plan for what is likely to happen if mortgage payments increase. The Bank has been keen to deny reports that an increase is inevitable but still holds the view that mortgagors will be better placed to cope with any change in the future if they consider now their financial circumstances.
Although homeowners may enjoy sufficient financial flexibility to deal with interest rate increases, the Bank believes that landlords with large leveraged portfolios may find it more difficult to cope.
Recent research published by London Borough Councils has revealed that a third of adults living in London say that housing costs (purchase price and rent) are pushing them to consider leaving.
Last month, the New Statesman Magazine found that 54% of Londoners view housing issues, mainly affordability, as the most "important issues facing London".
Against this backdrop, mindful of voters concerns about housing, London Mayoral candidates, Sadiq Khan and Zac Goldsmith have put it centre-stage of their early pitches, with Goldsmith going as far as to declare the election as a "referendum on housing".
According to the New Statesman, housing offers electoral potential in London and in the coming months both candidates are likely to use it as a platform for generating support across all demographics, regardless of age, class and tenure.
Following two recent court rulings in Plevin v Paragon Finance and McWilliams v Norton Finance, it is now possible that customers will be allowed to re-submit previously rejected claims for mis-sold PPI premium.
In the case of Plevin, the Supreme Court ruled that if a large element of commission is contained within the PPI premium, which the customer was not made aware of at the time they took out their loan, etc., then this could give rise to an "unfair relationship" for the purpose of Section 140 of the Consumer Credit Act 1974.
Many PPI claims are likely to contain a level of commission and it is not yet clear what degree, will amount to an unfair relationship between the customer and lender. In Plevin 71% of the PPI premium was commission.
On 2 October 2015 the Financial Conduct Authority (FCA) issued a statement following the decision in Plevin, and it proposes to consult on a number of issues to include a proposed deadline for customers to bring PPI claims within 2 years of spring 2016 and a communications campaign to raise awareness of the possibility of making a complaint.
The rulings coupled with the intervention of the FCA, could result in a resurgence of PPI claims, at a time when it was widely expected that PPI claims would start winding down.
The CMA promotes competition for the benefit of consumers and it recently published the results of its 18 month investigation into the retail banking sector. It has provisionally ruled out breaking up the UK's biggest banks.
The investigation was launched to consider competition concerns within the banking industry - the Big Four banks have a 77% share of active current accounts. However, the CMA has initially concluded that competition concerns will not be resolved by creating more, smaller banks. It has found instead that the underlying issue of lack of current account switching should be addressed. The CMA investigation established -
A list of proposals devised by the CMA to tackle competition concerns within the banking industry includes:
The British Bankers Association (BBA) welcomed the report, with BBA chief executive Anthony Browne saying the CMA's recommendations "build on existing measures by high street banks". Although other commentators believe the proposals do not go far enough, with Which? (the consumer body) executive director, Richard Lloyd, commenting that "consumers are disengaged from the banking market, so better information and nudges to switch will not be enough".
The Bank of England (the Bank) plans to cut the amount of capital that smaller lenders are required to set aside to cover mortgage defaults.
At present, large banks are permitted to use their own method for calculating the level of capital that they set aside against mortgages and small lenders must use a method set out by regulators.
In house modelling invariably results in a lower capital requirement when compared with a regulator's approach and according to the Bank's deputy governor and Prudential Regulation Authority chief executive Andrew Bailey, this requirement means that smaller lenders struggle to complete in lower risk markets such as prime mortgages because the amount of capital required by the regulator is disproportionately high. He believes that smaller lenders are forced to focus on riskier markets.
The Bank is now seeking to persuade the European Union to allow smaller lenders to abandon the regulator's calculation and allow reliance on in house modelling.
Despite challengers to the big high street banks’ warning that their ability to lend small businesses will be disproportionately affected, the Chancellor, George Osborne, has indicated that he is unlikely to raise the threshold for the new tax surcharge announced in his summer budget.
The Chancellor considers the 8% supplementary charge on all banking sector profits over £25 million to have been set appropriately and he does not believe that it will damage competition when it comes into force in January 2016.
A report by Lloyds Bank has revealed that several areas outside London have average property prices of over £1 million for the very first time.
A property in leafy Virginia Water, Surrey (where annual membership to one of the local golf clubs costs £125,000 and the local post office stocks Bollinger and Dom Perignon, we understand) costs on average £1.16 million. In Cobham, Surrey, (the choice of rockstars and footballers) the average house price is £1.04 million and in Beaconsfield, Buckinghamshire (nestled in the Chiltern Hills) the average house price is £1.04 million. This trio of towns are the most expensive.
However, despite the arrival of £1 million towns, Lloyds' record that the number of property sales in the UK worth at least a £1 million, for the first half of 2015, are down by 11 % compared to the same period in 2014.
While there could be a number of reasons for the decline, the report noted increased stamp duty since 2015 for homes costing over £937,000. Lloyds explained, by way of example, that a buyer paying £5 million for their property today needs to find £163,750 more than at this time last year to pay the tax.
Traditionally, fortunate first time buyers relied on the 'Bank of Mum and Dad' to step onto the property ladder. Statistics indicate that almost half of all first time buyers needed help to put down a deposit, with the average loan from parents reaching up to £24,000.
New research published by Lloyds Bank now indicates that almost a fifth of young homeowners are returning to the 'Bank of Mum and Dad' for help in buying their second property as house prices continue to rise.
On average, 'second steppers' must find £125,694 to move up the property ladder and a reported 14% said that they require financial assistance from their parents to make that move. Financial assistance, on average, of as much as £22,480 is sought at this stage. Commentators note that the reliance on family stems from the fact that, in some parts of the UK, property prices are rising faster than wages.
For the majority without such support, the government's Help to Buy scheme provides an opportunity to buy bigger properties than their usual deposits would allow. Other options include increasing savings and overpaying on mortgages in anticipation of the next move. The proportion of potential second buyers increasing their savings has increased from 29% in 2012 to 37% this year.
It is believed that a knock on affect of house price obstacles is that one in five young couples now expect to have children later in life because of the difficulties in buying a family home.