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:
Peer to peer
Since the tightening of the European rules in July 2016, the number of suspicious transactions has increased. The European rules require banks and brokers to report more data to the regulator, particularly suspicious transactions.
2016 was the highest year on record but, so far in 2017, there has been a 24% increase from the number of suspicious transactions reported in 2016.
The head of the FCA’s enforcement division commented that a 77% rise in reports had been reported since the Market Abuse Regime in 2016.
Conflictingly, the amount of money stolen from credit and debit cards has fallen. Figures from the first half of 2017 were 11% less than the figures reported this time last year. The drop is reported despite spending figures increasing by 8.4%.
Banks have pronounced they have managed to stop 67% of attempted fraud which has been accredited to banks tightening security systems and the government raising consumer awareness over the importance of protecting pin numbers and passwords.
The government is launching a national campaign aimed at offering advice to customers who are victims of fraud. Minutes published by the Home Office indicated that Brian Dilley, of Lloyds Banking Group, told the meeting about an "early stage idea" of having a single number - such as 555 - for the reporting of scams and fraud.
As we reported earlier in the year, the Land Registry plans to implement a digital mortgage deed service (known as ‘Sign Your Mortgage Deed’) later this year.
The service is intended to expedite the conveyancing process by avoiding the need for witnesses and the exchange of documents by post.
To ensure security, the Land Registry has been working with the Government Digital Service using its Gov.UK Verify identity assurance service. Once a borrower has verified his/her identity, they will receive a security code from the Land Registry via text message by way of two factor authentication.
The digital signature is not an electronic representation of a handwritten signature but a secure confirmation of the content of a deed and the identity of the signatory. It also prevents changes to the deed following signature.
The option to sign a paper deed and have a signature witnessed in the traditional way will remain available. However, this is a further example of the way in which financial services are taking advantage of online resources to expedite transactions and reduce the risk of identity fraud.
The total number of PPI mis-selling complaints has increased to 3.32 million in the first half of 2017 – up from 3.04 million in the second half of 2016. According to the Financial Services watchdog, more than 80% of the £2 billion paid out to customers during the first half of 2017 related to PPI mis-selling and it remained the most complained about product in 2017.
Current accounts and credit cards came second and third respectively, as the most complained about products. These figures should be taken with a pinch of salt, however, as the FCA has changed how it calculates its figures which will have had an impact on the findings
The most complained about financial services provider was involved with unsecured financial products in the retail sector, working with brands such as Currys, Asda and Argos.
The average number of complaints per 1,000 balances in the home finance space is 8, this increased to 42 complaints in relation to second charges.
Around 60% of all complaints are upheld.
It remains clear that PPI will continue to be a significant issue for the financial services industry as we head towards the August 2019 cut off point for complaints.
FCA research has indicted that nearly 17% of people with outstanding debt are suffering financial distress. The government's 2017 election manifesto contained a commitment to introduce a breathing space scheme which would provide individuals with significant debt issues, protection from interest payments, charges and enforcement action for up to six weeks. A statutory repayment plan could also be implemented in suitable cases. This would replicate the system currently available in Scotland.
The government has now published a consultation seeking input about how the breathing space scheme should operate
It is not clear whether the government envisages that the scope of the breathing space scheme would include lenders wishing to commence mortgage possession proceedings. Part of the consultation is concerned with how the scheme will interact with priority debts, such as those involving eviction. This suggests the scheme may not apply to repossessions.
The breathing space scheme is likely to impact lenders, as it does in Scotland. Under the Scottish scheme, the debtor is usually given an extended time to pay, once accepted onto the debt management repayment scheme and there is an additional cost to the creditor to cover the management of the individual.
If the scheme becomes operational this may also necessitate a further change to the pre-action protocol on debt recovery which came into force in October 2017.
The consultation runs until 16 January 2018.
UK Finance has released its ‘Update on Lending’ for October, in which it reports that gross mortgage lending in September was £21.4 billion, up 5% from September 2016, with credit card borrowing up 5.5% over the same period.
It also comments that whilst the start of the year saw an increase in first time buyers, more recently the market has seen an increase in the number of home movers. The number of remortgage transactions has also increased, likely driven (in part, at least), by the recent Bank of England’s recent interest rate increase.
Another result of historic low interest rates is that mortgage arrears and repossessions are currently at a record low. In the second quarter of 2017, 88,200 (or 0.8%) of the 11 million mortgages in the UK were in arrears by 2.5% or more of the outstanding balance on the mortgage, which is down by 5% on the first quarter. The number of mortgages in arrears by 10% of the outstanding balance was also down to 25,200, a decrease of 5% from the same period in 2016. Repossessions were also down by 100 to 1,800, accounting for 0.02% of all mortgages.
Following the Bank of England’s recent decision to increase the interest rate (and its indication that there will be further moderate increases) it will be interesting to see how activity levels change across the market from new lending through to arrears and repossession activity.
Modernising conveyancing appears to be a perennial topic with the Land Registry, the Government and the Conveyancing Association all taking up the mantle to try to improve the process. In the latest development the Government has published the result of a survey of 2,000 home buyers and has launched a new consultation asking for views on how the process can be improved.
The consultation is seeking views on how to speed up the mortgage application process and how borrowers can be encouraged to obtain a mortgage decision in principle before starting house hunting. This is an area where technology is starting to play a part, with lenders already innovating to reduce the time between mortgage application and offer.
Another suggestion is whether the seller and buyer could be encouraged to use the same conveyancer. Currently, conveyancers are only able to represent both the buyer and seller in a very limited set of circumstances to avoid conflicts of interest. Once a lender becomes involved there is an even greater risk of conflict. As such, it is difficult to see a change being made in this area.
The government also wants to make more information available at the point of sale, although it is keen to stress that this does not mean the return of home information packs.
It is clear that conveyancing is in need of modernisation. However, it remains to be seen whether this latest consultation will assist in actively moving the modernisation process forward.
The government is concerned that current systems are not working for consumers and has launched a consultation to consider how managing agents should be regulated.
In leasehold properties the freeholder is usually responsible for maintaining the communal areas. The costs of this are paid by the leaseholders by way of a service charge. Similar arrangements also apply to freehold properties where the estate contains communal land. It is often managing agents who are employed by the freeholders to oversee the collection and distribution of the services charges.
A recent survey has indicated that 66% of leaseholders disagree that the service they receive from the managing agent is good. Only 40% believe that the service charge represents value for money.
Statutory schemes which give leaseholders the rights to be consulted on management, challenge service charges and remove managing agents exist. However, these can be complex and expensive, making it difficult for leaseholders to challenge managing agents.
An unexpectedly high service charge may affect a borrower's cash-flow, meaning the borrower has to choose between mortgage instalments and service charges. If the borrower defaults on the service charge the managing agent is likely to contact the lender, threatening to forfeit the security unless payment is made. The lender must be careful to assess that service charges have been correctly demanded and the security can be forfeited unless a payment is made. The lender can usually add any costs to the debt and can instigate possession proceedings to recover the costs, if desired.
The consultation runs until 29 November 2017.
The Peer to Peer Finance Association (P2PFA) has published its lending data for the 3rd quarter of 2017, with more than £700 million lent during the period. Robert Pettigrew, Director of the P2PFA, commented: “Cumulative lending at the end of the same period in 2016 for P2PFA platforms was £4.2 billion, which underscores the continued steady progress which platforms have made in facilitating lending of more than £7.1 billion by the end of September 2017”.
Meanwhile, AltFi.com reports that Funding Circle, one of the P2PFA members, saw its revenue grow by nearly 60% in 2016, whilst reducing its losses compared to the previous year.
There has also been good news for RateSetter. Last month, it obtained full FCA authorisation and now plans to launch its Innovative Finance ISA before the end of the tax year. Its CEO, Rhydian Lewis, has announced that the platform anticipates returning to profitability next year, following a couple of years of significant investment.
As widely reported last month, the FCA has found that 50% of the UK adult population shows characteristics of potential vulnerability, meaning they are at increased risk of harm which may have a disproportionate impact when things go wrong. The full report can be accessed here.
Interpreting the core data, P2PFinanceNews.co.uk has reported that peer to peer and crowdfunding products have among the lowest levels of potentially vulnerable customers – commenting: “The FCA found 38 per cent showed signs of vulnerability, the lowest in the investment space, with investors holding structured deposits and insurance bonds shown to be most commonly at risk at 55 per cent and 51 per cent respectively”.
Catherine Zakarias-WelchThis publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.