Each month we summarise the latest news and developments in retail mortgage lending and regulation.
This month in summary:
Focus on Northern Ireland
A tenant who sub-let his council flat through AirBnB was evicted and fined £100,000. This comes amid plans for a national registration scheme which aims to prevent rogue landlords using letting sites such as AirBnB and would make it easier for local authorities to take actions against those illegally sub-letting their property.
The tenant in question used a false name when posting about the flat but was caught out when his real name appeared in the comments and testimonials left by the people who stayed there. The tenant, after an unsuccessful appeal, was evicted and ordered to pay back £100,974 in unlawful profits. It is illegal for council tenants to sub-let their homes and local councils are monitoring short-term letting sites for any potential illegal sublets.
By obtaining possession orders against those who are illegally subletting their council property, the council is able to reallocate the property to someone in genuine need of a home.
A recent government consultation paper aims at resetting the balance of rights and responsibilities between landlords and tenants. The consultation paper looks at the government's decision to remove section 21 of the Housing Act 1988 and improving section 8 grounds, putting an end to so called 'no-fault' evictions.
Under the proposed new framework, a tenant could not be evicted from their home without good reason or avenue for challenge. The consultation paper seeks views on how section 21 of the Housing Act 1988 has been used in the past, and the circumstances in which landlords should be able to take possession once it has been repealed. It is proposed that the removal of section 21 will be achieved by removing assured shorthold tenancies from the Housing Act 1988, coupling the existing protections with a more transparent, fairer possessions regime in order to provide tenants with the security they need to plan for the future.
One of the many aspects the consultation paper looks at is the time it takes for landlords to regain possession. The most recent MOJ figures show that from claim to repossession, the average time taken for private landlord cases was 22 weeks, in half of those cases, possession orders were granted within 7 weeks of the hearing.
The Civil Procedure Rules currently state that possession cases must have a first hearing between four and eight weeks. The consultation paper suggests that there is potential to reduce this by 1 week which would have the potential to reduce national average landlord possession case times by two weeks.
The consultation closes on 12 October 2019.
A deferral in revaluation for two years in 2015 has caused rates in many areas to rise steeply. Accordingly the multiplier which is used by the Valuation Office Authority to calculate business rates has risen from 34.8p to 50.4p. As a result concerns have been raised about the increasing number of businesses being summoned to appear before magistrates for non-payment of business rates. Robert Hayton, Head of UK Business Rates at Altus said that the steep rise in business rates was having a detrimental effect on the economy.
Consequently leadings retailers such as Debenhams, Arcadia and Monson have turned to insolvency measures to mitigate the impact of rising business rates.
The rates appeals process was also blamed for the high arrears that were plaguing businesses. The VOA launched a new system for challenging valuations in 2017, however according to John Webber, head of business rates at Colliers, this has not gone down well as it has had the effect of discouraging business owners from challenging valuations. Recent figures from the VOA show that at the end of March 2019 63% of challenges received were unresolved.
When do social media posts become an employer's business? With the majority of individuals having some form of social media presence, the danger for inappropriate content to be published is real. So at what point could an employer be liable, and when does freedom of expression turn into harassment?
Employers are now realising that they need to take firm action against online misconduct outside the workplace, but just when do employees' social media posts become an employer's concern?
Our article provides further insight into when employers might consider disciplinary action in respect of an employee's social media posts, as well as considering when employers might become vicariously liable for acts of employees on-line.
Newcastle Building Society is believed to be the first Building Society to introduce open banking technology linked to an online digital help service.
Under the new service mortgage customers who are facing financial difficult can consent to their bank providing their bank records to the Society. This information is then collated into an income and expenditure account. This greatly increases the accuracy of the information collected. It also means that the Society's customer advisors spend less time having to collect this information during conversations with customers. The time saving means the Society can focus on providing support and reaching solutions with customers. It also enables to Society to provide personalised debt advice to individual customers.
The framework for allowing opening banking was introduced in January 2018 and there has been some lead-in time required for the industry to develop applications and solutions which make use of the framework. Solutions such as Newcastle Building Society's digital help service may be introduced by other lenders and become part of the standard tools used by lenders try to assist mortgage customers in financial difficulties.
A recent report published by the National Audit Office (NAO) has highlighted some concerns about the Help to Buy scheme, which was introduced by the Coalition Government in 2013.
Since its launch in April 2013 the Communities and Local Government has administered 211,000 loans with a total value of £11.7bn which is nearly half the forecast limit (£25bn).
It was revealed that at least 63% of those who used the scheme could have purchased a property without it and that 19% were not actually first time buyers. Although housebuilders are said to have profited from the scheme, there remains a potential risk to the taxpayer. It was explained by Gareth Davies, the Head of the NAO that a decline in property values would leave the government exposed especially as this would tie up significant public financial capacity.
Furthermore in the event of a downturn in the market the housing capital would reduce in value. There is also the risk of negative equity which will impact the recoverability of loans administered under the scheme.
The Government has published a consultation to assess whether shared ownership can be modified to help more people into home ownership.
Typically a customer will own a 25 or 50% share in a shared ownership property. Typically there are provisions which allow the customer to purchase additional shares with a view to the customer eventually owning a full 100% share.
Additional shares can usually only be purchased in a minimum of 10% chunks. This can be a substantial financial outlay for a customer. In addition, the process of buying shares can be cumbersome and require re-valuations of the property. As a result few customers buy additional shares.
The Government wants to use technology to help customers invest in their homes and purchase additional shares in smaller increments. One of the questions the Government has asked as part of the discussion paper is how this proposal would impact on mortgage products.
Innovative lenders may be able to create new products that help customers buy additional shares automatically throughout the mortgage term. For instance lenders could regularly assess their exposure and whether monthly mortgage instalments would be better utilised in reducing loan capital or purchasing additional shares. If this model is to gain traction lenders may be able to negotiate model shared ownership leases which contain additional protection for lenders where purchasing shares has been given priority over reducing mortgage capital.
The survey is open until 29 September 2019. We will report further once as this topic develops.
A number of lenders already offer green mortgages. For instance Barclays Bank has a product aimed at giving a lower interest rate to customers who have purchased an energy efficient new build property. HSBC have also recently launched "green" finance for businesses aimed at loans to fund sustainable activities.
The Government wants to encourage more green lending initiatives and is aiming to promote green finance products and services and bring these into the mainstream. To help with this aim £5m will be made available to the public sector to pilot innovative new products such as green mortgages. The goal of the pilot is to looks at how home owners can be encouraged and incentivized to improve energy efficiency and reduce carbon admissions.
A consultation is also expected later this year to consider the merits of setting requirements for lenders to help customers improve energy performance in their homes.
Green GB Week is planned for 4 – 8 November 2019. This will also help raise awareness of green issues and the availability of green finance products.
The goal to bring green finance into the mainstream is gaining traction and this type of lending may well become important to future customers.
A breathing space scheme for individuals with problem debt will be implemented by 2021. This will introduce a 60 day statutory pause on the accrual of interest, fees and charges on personal debts and some business debts of small sole traders incurred up to the date the individual enters the scheme. However, individuals will still be responsible for meeting ongoing liabilities throughout the breathing space period. The intention is to encourage individuals with problem debt to access formal debt advice and provide time to identify a sustainable solution to their debt problems.
What is problem debt?
An individual will have problem debt when they are experiencing difficulty repaying their debts, and there is a realistic chance they may be able to enter a formal debt solution such as insolvency or a debt management plan.
Operation of the scheme
The scheme will be triggered when:
1. The individual accesses FCA regulated debt advice;
2. The debt advisor considers there is a realistic chance of the individual entering a formal debt solution and that the individual needs time to do this; and
3. The individual has not been in breathing space in the previous 12 months.
How will creditors be informed?
Creditors will be notified of an individual's entrance to or exit from breathing space, via an online portal operated by the Insolvency Service.
What debts will be included in the scheme?
The intention is that as many debts as possible will be included such as financial services debt, household bill arrears and arrears owed to central and local government.
What steps can be taken to prepare for this scheme?
Industry body, Association of Consulting Actuaries (the ACA) has responded to the Financial Conduct Authority (the FCA) discussion paper (published in May) on intergenerational differences, by looking into devising a product which combines saving for retirement and a mortgage whilst providing consumers with mandatory advice.
The ACA has explained that the majority of young people will begin to save into a pension around the age of 22 alongside saving for a house deposit. ACA say that the two savings need to be kept separate as lenders tend to determine affordability of a consumer by assessing net income and without pension contributions and therefore feel there is the need for a more flexible savings product.
The proposal is similar to that of MP James Brokenshire, who suggested that first-time buyers should be able to use their pension pots to top up their savings for a house deposit. This did not go down well within the industry as a Lifetime ISA is already supposed to allow consumers to save for retirement and/or a house deposit. However, this is yet to meet government expectations.
In order to provide for a new and flexible product the ACA believes that a robust advice and safeguarding framework is required by the industry to support this innovation.
In its quarterly update, the Association of Mortgage Intermediaries (the AMI) has warned that arrears are currently increasing on short term bridging loans.
The AMI update includes a reminder that 'the short-term sector usually leads the residential market where arrears and possessions are concerned' and a caution for longer term lenders to 'consider (their) own readiness for rising arrears.'
The increase is due to a number of factors. Uncertainty surrounding Brexit has caused the property market to slow resulting in borrowers taking longer to sell properties and repay loans. In addition, the AMI has stated that the level of arrears will be impacted by changing employment dynamics, an aging population that is more reliant on continued work to service debts and increasing bank interest rates.
The Supreme Court has refused permission to appeal Antoine v Barclays and another as the application did not raise an arguable point of law.
In this case it was held that the registration of a vesting order was not a mistake for the purposes of the Land Registration Act 2002, even though the order had been obtained using forged documents. There was no proper basis to rectify the Register and whilst the courts had sympathy with Antoine's situation, this could not allow them to influence the application of the law.
This decision will be welcome to lenders in cases where fraud has been discovered. Read our full article to find out more about the case.
Recent data released by UK Finance paints a somewhat worrying picture for interest only customers – 60% of some 1.1 million interest only loans are due to expire over the next eight years...
TLT is working with Spicerhaart Corporate Sales and Excel to create an interest only solution for lenders for those customers who are either approaching end of term with no repayment plan in place or whose mortgages are past maturity. This approach combines Excel's experience with face to face engagement with the customer, TLT's expertise in financial services and Spicerhaart's property knowledge with the aim of presenting a complete solution which delivers a workable solution for the lender and hopefully a resolution which avoids repossession.
The growth in the retirement interest only market may also present new resolutions for customers who would otherwise not be able to service their mortgage debt beyond the end of term. Perhaps then not a financial crisis but an emerging market where new products are introduced to assist customers and allow them to remain in their homes where it is affordable to do so.
Several lenders are now offering borrowers who have Help to Buy loans better deals allowing them to remortgage for larger sums than their current mortgage balance. This will enable borrowers to pay off the Help to Buy equity loan and maximise any future equity for themselves.
Previously, many lenders would require that borrowers pay off their equity loan as part of the process whilst only offering a remortgage at a maximum of 75% loan to value. This often made it difficult for those borrowers who did not have the means to do this without sacrificing equity. This situation is now improving with some lenders allowing borrows to remortgage at up to 95% loan to value over fixed periods of two and five years whilst also cutting rates and offering free valuations.
This would save borrowers from paying the additional interest which increases after the initial 5 year period (sometimes into the thousands of pounds) and management fees whilst making sure that borrowers will benefit from any future equity in their property.
According to figures recently published by UK Finance, re-mortgages in Northern Ireland have increased by 16.5% during the period 2018-2019, with mortgage lending in general in NI continuing to rise.
The figures also show that during the first half of 2019 the re-mortgage market has in fact overtaken the first time buyer market. As property values had risen steadily over the past few years, an ever growing number of borrowers are now taking advantage of an increased equity position and re-mortgaging to complete "home improvements and extensions". Head of Mortgages at Danske Bank, Patrick Mullan, believes the increased figures in the UK Finance report "showed the health of the housing market and that people were keen to move regardless of worries about the economy".
However, Mr Ramsey, Ulster Bank chief economist, has said whilst the NI and UK lending market in general is as strong as it has been in years, he does not think NI will be unaffected by any potential future downturn in the economy. This view is supported by KPMG who as recently as 2 September 2019, predict that if no a deal Brexit occurs, NI will be the hardest hit in terms of property values with an anticipated average fall in property value of 7.5%, with London the next to be hardest hit with a fall of 7%. Even if a deal is reached, KPMG still predict a fall in NI property values so it will be interesting to see how next year's figures compare.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.