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Busy lenders' monthly round-up - June 2017

This month in summary

News

Lending

 

Focus on Scotland

News

Update: Cardiff CC v Lee

Last month, we reported that a consultation was planned to consider whether the court rules should be updated following the Lee case.  The consultation has now been published and runs until 30 August 2017.  For the time being there is unlikely to be any change to the current rules or procedure.

The Rules Committee seeks industry views on whether to abolish the new rule requiring the Court's permission to enforce a suspended possession order or whether the lender should simply certify that the customer is in breach.

We will report again once the outcome of the consultation has been published.

Update: Welsh Stamp Duty

The Land Transaction Tax and Anti Avoidance of Devolved Taxes (Wales) Act 2017 has been passed.  This Act brings the introduction of a Welsh-only tax regime to replace SDLT a step closer.

The new scheme will be called Land Transaction Tax and is likely to broadly mirror the English SDLT.  However, Welsh Ministers will need to publish secondary legislation giving details of the actual rates.

It is envisaged that the new tax will come into place for April next year.  We will report further on this once more specific details are known.

Abandonment of Tenancies

The Housing and Planning Act 2016 has created a new process for repossessing abandoned residential properties in England.  It is designed as an alternative to court proceedings after expiry of a s8 or s21 notice and aims to promote certainty and speed.

The reality is the alternative process is likely to be of limited use.  Landlords rarely instigate court proceedings where they are confident that a property has been abandoned.  Instead, an abandonment notice is usually affixed to the property and, if there is no response within the period specified in the notice (usually seven days) the property is taken into possession.

The new process will require two consecutive months of unpaid rent and three specified notices to the tenant over a two-month period.

Secondary legislation will be needed to bring this alternative process into force.

For more details on the process and the required notices please click here.

Bank of England continues to hold interest rates

The Bank of England has again decided to keep interest rates at the current record low of 0.25%.  Interestingly, three members of the Monetary Policy Committee (MPC) backed a rise in interest rates, resulting in the third non-unanimous decision since July last year.

The 5-3 vote in favour of maintaining the current rate is the closest since 2007 and highlights a recent shift in perspective for some members of the MPC.

Whilst those in favour of increased rates pointed to rising inflation (currently at a four year high of 2.9% and expected to exceed 3% before year end), coupled with notable growth in business investment and net trade, the remainder of the committee cited the recent slowdown in consumer spending and economic growth as reasons to maintain the status quo.            

Static rates are unsurprising given Mark Carney's recent speech to bankers in which he argued against an increase and cautioned that weak wage growth could undermine economic growth as Britain negotiates an exit from the European Union.

However, the position going forward is uncertain with noted 'rate hawk' Kristin Forbes replaced on the MPC by Silvana Tenreyro in the next few days.  As Professor Tenreyro has form for supporting low rates in order to encourage growth (at the Bank of Mauritius in 2013 and in research papers) this may rebalance the division of the MPC.

Car Finance – Good Mortgages Bill

This bill was announced as part of the Queen's speech.  It aims to modernise loans secured against a consumer's assets.  The prime example of this type of lending is vehicle log book loan.

The bill was expected as the Law Commission published a report on the subject in September 2016.  In February 2017, Parliament agreed that legislation was needed but the government wanted to discuss the issue with key stakeholders before introducing new legislation.

It is anticipated that legislation will bring log book loans into line with regulation that governs asset finance enabling a customer to purchase a new vehicle.  This is likely to mean that a creditor will not be able to repossess a vehicle without a court order.

Other provisions likely to be introduced by the bill include a right to voluntarily surrender goods.  It will also be made clearer that a borrower who knowingly sells a vehicle that is the subject of a log book loan could be liable for fraud.

FOS Review 2016/17

The FOS recently published its 2016/17 annual review.  The review provides statistical data and commentary of the FOS’ service over the past year.

PPI complaints continue to dominate FOS’ workload, accounting for over 56% of new complaints.  Excluding PPI, 152,514 new complaints were received, 6.8% of which concerned mortgages.  This figure represented an 8% drop compared to last year.

Of the mortgage complaints, 41% concerned sales and advice. Administration, charges and transactions accounted for 30%, 10% and 7% respectively; the remaining 12% being ‘other’ complaints.

The FOS resolved 6,246 mortgage complaints, upholding 31%.  In doing so, the FOS suggested a basis, or formula, on which compensation should be paid in 47% of cases and a non-monetary remedy in 20%.  A payment of up to £25,000 accounted for 30% and payments up to £150,000 the remaining 3%.

In terms of timescales, 83% of complaints were resolved within three months and 99% within 12 months.

The FOS’ workload reacts to trends and developments (PPI, for example).  The proportion of mortgage complaints may therefore increase dramatically over the coming years as more interest-only mortgages reach maturity or borrowers enter financial difficulty as a result of changes in the economy. 

We also provide a quarterly update on recent FOS decisions which tracks trends in consumer finance, including mortgages.  To sign up to this update, click here.

Lending

Vulnerable customers - new guide on lending

On 14 June 2017, the UK Cards Association (UKCA) and the Finance & Leasing Association (FLA) published a guide for lending to vulnerable customers, together with a related data report.

The guide is designed to help finance providers identify and support customers in vulnerable situations when applying for credit.  It has been developed using the combined experiences of staff across eighteen finance providers who manage credit applications from vulnerable customers.

The guide focuses on supporting customers with a mental capacity limitation which may affect their decision-making abilities.

A new protocol, 'BRUCE', has been designed to help staff look for clues in a customer's behaviour or speech which could indicate issues with remembering, understanding, communicating or evaluating the credit options being discussed, and the customer making a decision about entering into a credit agreement.

The context for much of the guide is the FCA's Consumer Credit sourcebook (CONC) and the FCA's guidance for lenders on mental capacity. 

The guide, and the research that underpins it, aims to provide:

  • Practical detailed guidance that complements CONC.
  • Data on how often customers with decision-making limitations are encountered.
  • Insights into perceived challenges and positive practices.

According to a related UKCA press release, the CML, BSA, BBA, CSA and MAT have all endorsed the guide.

Repossession Sale Volumes

Data published from Land Registry's house price index last month showed a total of 52,883 transactions registered in February this year, 589 (1.11% of total sales for the month) of which related to repossessed properties. 

The highest number of repossessions was in the North West (124), closely followed by Yorkshire (108).  By comparison, the East of England had just 15 sales and London had 46.  This suggests that there remains a North/South divide in terms of mortgage affordability.

It should be borne in mind that there will usually be a gap of a number of weeks/months between a sale being completed and the transfer being registered at Land Registry.  No data has yet been published for Wales. 

Land Registry's website contains an interactive tool to examine sales data but it does not enable any further drilling down into repossession transactions.

Digital Home Reports

In the run up to the recent general election the Conveyancing Association called for the next government to consult with the property industry to discuss how the conveyancing process could be improved.

The Association would like to see a fast and efficient digital conveyancing service in place and use Australia's system as an example. The Associations chair, Eddie Goldsmith, has also said that a digital-home report could save lots of time.

This is not the first time home reports have been mentioned by the Association, which has been pushing to modernise conveyancing for some time.

The conservative manifesto did contain a pledge to create a geospatial digital map of Britain to help improve property development.  However, this did not appear in the Queen's speech.   As such it would seem that digital home reports for speeding up the conveyancing process are still some way off.

CML reduces BTL forecast

The CML has lowered its buy-to-let lending forecasts to £35bn in 2017 and £33bn in 2018, down from £38bn predicted in December 2016.

The CML says the reduction is due to changes in the tax regime (such as the 3% stamp surcharge) and increased regulation.  It considers that this reduction should dissuade the government from making further changes to taxation and regulation when it comes to buy-to-let lending.

Commentators also suggest that the uncertain political landscape resulting from the recent election will dissuade property investment until an element of certainty returns to the market.

However, the combination of low mortgage rates and subdued competition from the investment market (especially from small scale investors), means that first time buyers find themselves in an advantageous position when it comes to securing properties.

CML to tackle ground rent scandal

The CML is tackling the ground rent scandal that has left some homeowners unable to sell their properties due to exorbitant ground rent demands.

This follows a recent trend of developers selling the long leasehold interests in new-build homes, subject to sharply increasing ground rent charges.  In some cases these charges double every ten years, making the property severely unattractive for re-sale and in some cases unmortgageable.

While the CML does not intend to intervene in lending practice, it does plan to raise awareness of leasehold security amongst its members, to assist them in setting policy to mitigate the risk of spiralling ground rent.

The guidelines will be focused on requiring conveyancers and valuers to identify long leases and investigate the ground rent clauses within the lease documents themselves, following which, lenders will be able to make better informed decisions.

The CML is also consulting with the Home Builders Federation to reduce the risk of spiralling ground rent in the new build market and work towards a standardisation in long leasehold agreements.

Government to address mortgage/conveyancing process

Justice Minister, Dominic Raab, has confirmed the government will consult with the conveyancing, agency and surveying sectors with a view to reforming the conveyancing process in England and Wales and establishing, “options to deliver better value and make the experience of buying a home more consumer-friendly.”

Currently, some £270m is spent each year on failed house purchases in England and Wales and home buying is considered one of the most stressful of life's activities.

The reforms are aimed at securing financial commitment to end 'gazumping' (which accounts for 21% of abortive sales) and standardising application and conveyancing documents to increase consistency across the market.  This may include revisions to the CML Handbook (particularly part 2) to ensure consistency in conveyancer's reporting obligations and speed up the conveyancing process.

Another suggestion is to regulate estate agents in order to increase consumer confidence and ensure that all of the professionals that buyers and sellers encounter throughout the course of a transaction are regulated and accountable.

Whilst the absence in parliament of specific reference to lenders as stakeholders in the conveyancing process was perhaps conspicuous, they will doubtless wish to be part of this debate.  Lenders will likely gear up to lobby government to ensure that they are comfortable with any changes to the way in which they instruct and receive information from their professional advisers.  This will provide a good opportunity to consider the way in which they instruct and retain their advisers and also mitigate risk arising from the recent decision in Hughes-Holland v BPE Solicitors, which may in some circumstances limit an adviser's liability in relation to future lending.

Focus on Scotland

Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill

On 1 June 2017 the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill was introduced by the Scottish government.  The Bill aims to make the Scottish civil justice system easier to navigate and more affordable.

As predicted, the Bill makes provision for “Success Fee Agreements” including “Damages Based Agreements” (DBAs) and “Speculative Fee Arrangements”.  DBAs will allow solicitors to enter into “no win, no fee” or “no win, lower fee” arrangements with clients.  Therefore, if the civil action (or contemplated civil action) is unsuccessful no fee, or a lower fee, will be payable.  If successful, the legal fee will be a percentage of the damages awarded.  Scottish Ministers will have the power to set a cap on the amount payable. This is likely to be a welcome introduction for pursuers as they will have greater clarity regarding the legal fees payable.

In addition to the above, the Bill provides for:

  • the introduction of Auditors of Court;
  • the ability to raise group actions in the Court of Session;
  • the award of expenses against a third party funder with a financial interest in the action; and
  • the payment to a Scottish charity where expenses are awarded to a party who is represented free of charge.

Whilst the Bill was only introduced this month, it is widely considered that the provisions will be passed by the Scottish Parliament.  We will monitor and report on the progress of the Bill.

Contributors:

Claire Pleece

Luke Austin

Emma Finch

Duncan Martin

Ben Hanham

Catherine Zakarias-Welch

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.



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