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:
On 3 January 2017, the FCA withdrew the information sheets it required consumer credit and hire providers to give to borrowers from 18 January 2017. The FCA will issue new information sheets later this year and there will be a three month period before consumer credit and hire providers must start using them. Until then, consumer credit and hire providers must continue to use the existing information sheets. If they do not do so, they will not have complied with the Consumer Credit Act 1974.
For the avoidance of doubt, these information sheets do not apply to regulated mortgage contracts (or agreements that became regulated mortgage contracts under the Mortgage Credit Directive).
For more information, please see the FCA's website
It has been a busy month in the peer to peer lending sector. Noteworthy developments include Funding Circle's lending in November hit a new high of £100 million, breaking its previous origination record set the month before. It has also become the first platform to lend £100 million in a month.
ThinCats also hit a new milestone, with total lending to UK businesses reaching £200 million. Meanwhile, MarketInvoice reported that, since opening for business in 2011, it has funded over £1 billion worth of invoices.
Across the sector, AltFi have reported that lending in the final quarter of 2016 is anticipated to exceed £1 billion for the first time.
Zopa experienced such a surge in new investors that it had to temporarily limit (for two weeks) how much could be invested, as the investor growth outstripped the growth of new loans.
Finally, a number of platforms have recently obtained full FCA authorisation including The Money Platform, Folk2Folk and LandLordInvest. This follows in the steps of Lending Works, as we reported in October. The largest platforms continue to await full FCA authorisation, as ThinCats noted in their monthly newsletter.
Earlier this month, the FCA published a Feedback Statement focusing on certain aspects of the loan based market, including:
Interestingly, if peer to peer platforms were to facilitate residential mortgage contracts, certain existing FCA rules would not apply if investors were not lending by way of business. The FCA plans to address this discrepancy.
In relation to the concerns about disclosure, AltiFi report that the four largest platforms, which account for about 70% of the peer to peer market by origination, already publish extensive information about risk and loan performance.
The FCA expects to complete its research by early 2017. It will then decide whether further consultation on rule changes is needed. If necessary, it will publish a second consultation on rule changes in mid-2017, with new rules expected to be in force by 2018.
Following our report on this case last month, the Court Service has now released a suggested interim approach to the enforcement of suspended possession orders (SPOs).
The new approach requires a statement of account to be provided with the warrant request showing payments due and payments made. It is not stated what length of time the statement should cover – we suggest from the date of the possession order up to the date of the request (or for the older orders going back two years).
Due to the requirement for a statement, it won't be possible to enforce SPOs using PCOL, the court's electronic system.
When an application to enforce an SPO is received by the court it will be referred to a district judge to consider. We expect this new process will have an impact on timelines.
It is important to note that this new procedure only applies to the enforcement of SPOs. The process for unconditional/straight possession orders will remain unchanged.
We await comment from the Civil Procedures Rules Committee regarding any further changes.
We will report further on this topic as further news becomes available.
An unsecured recoveries pre-action protocol is likely to be introduced next year by the Civil Procedure Rules Committee. This will require letters before action to state that the customers are entitled to ask for a copy of the original agreement, rather than requiring the agreement to be included with the letter. The protocol is also likely to set out the form of a financial statement to be completed by the debtor to assess affordability of payment arrangements.
A draft protocol is currently being prepared. We will provide details once this has been published.
In related news, a parliamentary debate was recently held on the topic of CCJs. Concern was raised about the impact on credit ratings and, more specifically, mortgage applications of CCJs for small debts such as parking fines or mobile phone/gym contracts. A rating system has been proposed meaning less weight would be given to smaller debts by credit reference agencies.
A further point of concern was that debtors may not know about the CCJ if the court papers were sent to an old address. It was suggested that the Scottish model could be adopted whereby documents are sent by recorded delivery or delivered by Sheriff Officers.
These issues may well be addressed by the proposed pre-action protocol.
In the 2016 case of Leeds City Council v Broadley the council argued that a landlord should be responsible for council tax when a tenant vacates during the fixed term period of the tenancy. The issue was whether an Assured Shorthold Tenancy - the modern day type of tenancy that most private tenants have - could be given a different legal status to a traditional lease that shifted the obligation to pay council tax back to the landlord.
Claiming against the landlord may be more advantageous for the council given that tenants can tend to come and go, making it difficult for local authorities to keep up.
Unsurprisingly, the Court of Appeal did not agree, sticking with an interpretation of 'lease' that goes back to 1925. The court confirmed that tenants would remain liable for council tax for any fixed contractual period of their tenancy, even if they leave the property before the end of the fixed term.
This is decision will be of particular interest to receivers who may have experienced spurious Council Tax demands and provides a welcome clarification of the law.
Earlier in the year, the Renters’ Rights Bill was introduced and, if passed, will apply in England only. The House of Lords made some minor amendments to the bill in November.
The bill aims to give additional protection to tenants by:
The specifics of the electrical safety requirements will follow but is likely to include a fine and/or the ability of the council to enter the property to correct any failing by the landlord.
The prohibition of agent's fees would include the cost of applicant credit checks. If landlords forgo credit checks receivers appointed by lenders may encounter more tenants defaulting on rent.
The Bank of England’s (BoE) rate-setter Ian McCafferty has said that following the June EU referendum, rising inflation, a slowdown in growth and a likely hit to the supply side of the economy have all meant that interest rates are as likely to fall as rise.
In the context of the lending industry, because mortgage interest rates are already so low, a rate reduction would be unlikely to have a significant impact on the products currently on offer, but a rise, with much more scope for movement, would likely be passed on. This may mean that borrowers choose not to remortgage, or they choose longer term fixed rate products in an effort to insulate themselves from future rate increases.
However, as the nature of Mr McCafferty’s statement suggests, the BoE simply does not know what is likely to happen and the outlook for 2017 remains unclear as we await further developments regarding Brexit and the economy.
A report from the Royal Institution of Chartered Surveyors (RICS) predicts that house prices in the UK will rise by 3% in 2017 due to a shortfall in the number of houses coming to market.
House prices are predicted to rise as demand continues to out strip supply. In November 2016 transactions fell by 7.3% compared to the same month last year. It is predicted that the total 2017 property transactions will amount to between 1.15 million and 1.2 million in 2017, which is below the 1.25 million anticipated for 2016.
Whilst it would appear that the market has been resilient post-Brexit, RICS expects the on-going lack of supply to continue to push up house prices. RICS considers that the shortfall of housing stock will continue to underpin prices and rent. In January 2017 the government will publish a white paper addressing the shortfall in all types of housing which may result in an upturn for major house builders in construction.
Recently, a property on the run-down estate which featured in the opening title sequence of Only Fools and Horses sold for £1.1million – Del Boy could have been a millionaire had he just sat tight in Nelson Mandela House! How would other fictional Londoners have fared?
The Lending Standards Board (LSB) has announced that there will be new Standards of Lending Practice for business customers. This follows the Standards of Lending Practice for personal customers that came into effect in October 2016.
The new Standards outline the way a registered firm is expected to manage the customer relationship through the product life cycle. They will be launched in the first quarter of 2017 and will replace the micro-enterprise provisions of the current LSB Lending Code.
The Standards will alter in relation to product scope. Plus the protections to SME customers will now include businesses with a turnover of up to £6.5 million.
The launch will take place in two phases:
Market Harborough Building Society has become the latest lender to offer a mortgage product aimed at first-time buyers, via support from their parents. The Society has launched a family asset mortgage product which provides a 100% mortgage providing that the customer's parents agree to an additional charge on their own home.
A number of other lenders are now offering similar types of product, although the functionality can differ. Barclays have a family springboard mortgage which requires a customer's parents to pay 10% of the value of the mortgage into a separate savings account. The parents receive their money back after three years if the customer meets all the monthly instalments. The Family Building Society offers products which are either based on a parent's money deposited in a separate account or an additional charge over the parent's property.
These are innovating products which help new buyers whilst limiting the lender's exposure to what would otherwise be a 100% mortgage.
For lenders wishing to develop these types of products it is important to recognise that there will be additional specialist conveyancing work involved in, for instance, taking an additional charge over a parent's title. This will include ensuring that the parent obtains independent legal advice. Given the complexity lenders may wish to limit their conveyancing panels for these products to trusted legal advisors. For more information please contact either Ben Hanham or Sian Davies.
Mortgage Solutions interviewed four leading figures in the intermediary industry to give their assessment of what lies ahead in 2017.
Gemma Harle, managing director at TenerLime, thought that brokers would face lenders who are investing in new technology to attract and retain customers direct. That said, lenders such as Virgin Money continue to support brokers with initiatives such as ‘Find a mortgage broker’ and ‘Mortgage Lab’.
Gemma also saw second charge lending becoming regulated under the Mortgage Credit Directive (to become aligned with first charge lending) as an opportunity for brokers to assist customers who are currently struggling to get a mortgage.
Paul Flavin, a director at Zing Mortgages, considered that brokers would need to adapt to avoid falling behind and losing market share. In particular, the changing buy-to-let market presented challenges and opportunities for those willing to acquire extra knowledge to help borrowers. He put a premium value on customer service in a highly competitive arena.
Matt Sutton, managing director at Emerald Finance, saw new lenders as being able to offer a more tailored range of products and options. In addition, low interest rates meant that there were opportunities to promote excellent remortgage deals to borrowers on ‘stagnating’ old deals. Low interest rates also gave brokers the chance to promote diversification by investing into buy-to-let, with better returns and capital growth.
Finally, Christ Schutrups, managing director of The Mortgage Hut Group saw 2017 as a potentially tough year, but with opportunities. Low interest rates and new lenders would enhance choice, which is good for brokers. He also highlighted that as Help-To-Buy nears an end, lenders continue to offer 95% mortgages, helping stimulate the lower end of the market.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.