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:
Focus on Northern Ireland
We have reported in recent months on the growing concern on the level of rents which have been included in some new-build leasehold properties. A number of developers have included clauses where ground rents escalate dramatically over the term of the lease.
The growing awareness of this topic is leading to an increased number of claims against conveyancing solicitors for failing to report or advise on onerous rent provisions. A defendant solicitors' firm has recently reported seeing over 400 claims of this issue in the last 12 months.
From a lender's perspective an onerous lease provision is likely to affect the value of the security. This could give the lender grounds to claim against their completing solicitors. Whether such a claim is practical will depend on a number of factors, for instance; the loan to value ratio, whether the loan is currently performing and whether the solicitors who acted have indemnity insurance.
The challenge for lenders will be identifying these cases amongst their stocks of new-build mortgages. Nevertheless, if lenders suspect their security comprises of a leasehold title with onerous lease provisions it may be prudent to investigate this. Lenders should also bear in mind that their customers may also have a separate claim, but, the customer and lender may have different objectives so lenders should seek their own legal advice.
A group of estate agents based in Burnham-on-Sea have been fined £370,000 for rate fixing, which the Competition and Markets Authority (CMA) said was an illegal cartel. Six agents (which together held 95% of the market share in the local area) had a meeting at which they agreed to fix their minimum commission rates at 1.5%.
Five firms (Abbott and Frost Estate Agents Limited, Gary Berryman Estate Agents Ltd (and its ultimate parent company Warne Investments Limited), Greenslade Taylor Hunt, Saxons PS Limited, and West Coast Property Services (UK) Limited) were fined a total of £370,084. The sixth firm, Annagram Estate Agents Limited trading as CJ Hole, was not fined as it was the first to confess and co-operated with the investigation.
The first six months of 2017 saw 89,000 reported cases of identity theft in the UK. This is a new record and more than half of all fraud recorded by Cifas.
Consumer confidence was further reduced when Equifax (one of the top three credit reporting bureaus) admitted the data of up to 145 million people in the US and 400,000 in the UK were hacked. A year's worth of free identity theft protection and credit file monitoring did not go down well either, as it was offered in exchange for a waiver from consumers not to pursue claims against it for the breach. Equifax subsequently retreated.
With the ever increasing online presence, Cifas found the likely victims of 80% of identity thefts in the UK are in their 30s and 40s. Experian's research unearthed males in their 20s, living in London, as the most likely victims.
It seems the more online presence an individual has, the greater the risk of being a target.
Housing Minister Alok Sharma, speaking at a major residential conference, said rent controls will definitely not be a government policy for at least the duration of the current parliament. According to Mr Sharma his department's priorities are planning and house-building – there is already a £65m debt financing package to build 7,000 new homes, many of them being Build-To-Rent properties in London.
Building on its online savings accounts and digital lending platform in the UK (Marcus by Goldman), Goldman Sachs could soon be offering UK online deposits. It has indicated it may also buy a deposit book (seen as a more stable asset during difficult market conditions) and offer a retail lending arm here in the future.
Within eight months of start up, Marcus reportedly lent $1bn of loans and it is expected to reach another $1bn by the end of the year. Returns on Marcus loans are reportedly four or five times higher than those of the overall group, which could be a solid bet to boost profits.
Goldman hired former TSB director, Des McDaid, in July 2017 as a managing director in London. Plans include expansion of his existing group and a call centre by mid-2018.
Mark Carney's announcement that any coming interest rate increases will be “at a gradual pace and to a limited extent”, has raised expectations of a rate increase before the end of the year. This is a response to increased inflation, but also perhaps the result of concerns about a growing consumer debt bubble due to historic low interest rates.
Last month we reported that a small number of courts would be running a pilot of extended opening hours. The Courts Service has now decided to postpone the pilot until February next year.
The Court Service is repeating the tender process to find an independent organisation to evaluate the pilot. It also wants to engage with stakeholders, such as legal professionals, to find an appropriate way to maximise the use of court buildings.
We will report again when news of any future pilot of extended court hours becomes available.
It has now been 18 months since second charges were caught by MCOB.
Whilst the FCA hasn't announced any specific review of second charge lending, it seems they are speaking to second charge lenders to understand how affordability rules are now being applied and to check that second charge lenders are complying with MCOB and the requirement to treat customers fairly.
On 1 September 2017 the FCA published its quarterly consultation, which, in part, looked at lifetime mortgages. Currently, lifetime mortgages are defined to include Retirement Interest Only Mortgages (RIOM). The FCA commented that the requirement for customer to have a repayment vehicle creates a regulatory barrier which prevents older customers' needs being met.
The FCA wants to amend the MCOB rules to create a separate RIOM definition. This will be a mortgage restricted to older customers whereby no capital is repayable until a specific life event occurs, such as death or long-term care (an acceptable repayment strategy.) The new definition will also correct an error in MCOB whereby lifetime mortgages are not restricted to older customers.
These charges to the regulations may help customers whose mortgage terms are due to end shortly and who currently have no repayment vehicle in place. The consultation is due to end on 1 November 2017 and we will provide further updates as more news become available.
Wyelands has launched a range of savings accounts to fund finance for new companies seeking to expand.
The new UK bank, purchased by steel tycoon Sanjeev Gupta for £30 million in 2016, expanded its products to retail savers to boost lending to small industrial and manufacturing businesses.
Mr Gupta commented “I believe strongly in the revival of British industry, and Wyelands Bank will be a champion of those businesses which have vision and ambition. In my view, Britain needs a bank specialising in the industrial [small and medium business] sector that will be a friendly source of finance to oil the wheels of industry, stimulate growth and create jobs.”
It's reported Mr Gupta will provide £100 million in share capital, having already supplied half this amount.
There is a trend in the UK for entrepreneurs to move into specialist lending and retail banking.
Wyelands' Chief Executive, Iain Hunter, recently said a number of specialist banks have come forward over the last few years to fill the gap left by high street banks which stopped lending after the financial crisis.
Another new UK bank, Redwood Bank, backed by Warrington Borough council, former Conservative party treasurer David Rowland and US financiers, has opened its doors offering secured mortgages to small UK business owners.
Redwood Bank has offices in Letchworth and Warrington. It's reported it will focus on providing savings and mortgages to SMEs, predominantly in Hertfordshire, Bedfordshire and Buckinghamshire, as well as in the north-east of England.
On 7 September 2017 housing minister, Alok Sharma, opened the UK's first plot shop in Bicester, Oxfordshire. The shop is selling plots on the 1,900 house development at Graven Hill, Oxfordshire. Currently, plots are available from £149,000 and this generally includes the below- ground work. The plot owner can then design their own home, subject to the planning limitations imposed on the look and feel of the whole site.
This type of scheme is popular in Holland and Germany and the Government is keen to support such schemes as part of its national housing policy.
Virgin Money is working closely with the team at Graven Hill to assist with custom-build mortgages. Currently a niche area of mortgage lending – if the Graven Hill site is successful customer demand could increase. Lenders wishing to explore opportunities in this area will need to ensure that they have appropriate valuation advice and skilled legal professionals assisting with the release of the mortgage advance. TLT would be happy to provide specific advice in this area.
Six big lenders recently joined UBS' digital cash project – 'utility settlement coin'. The launch is expected by late 2018.
The idea is that inter-bank transactions, including those in different currencies, will be processed more efficiently. The next phase could see banks settling securities using the same technology.
Initial fears of it being targeted by fraudsters have lessened and the focus is on data privacy and cyber security protections. It is not yet known how risk free the system will be and whether central banks will use it.
The Chinese central bank recently banned initial coin offerings of cryptocurrencies which led to a fall in value.
Besides fraud, security and loss in value, further concerns include:
The broad concerns may well prompt central banks to make their own currencies more appealing.
On 20 September Natwest announced a new digital mortgage process meaning that when applying by telephone all Natwest mortgage products can be paper free. The bank has indicated that documents such as passports and payslips can be uploaded to a secure portal and a call back arranged with an advisor to go through the documents and arrange for the mortgage application to be signed digitally.
Natwest say this will enable the mortgage offer to be processed within 24 hours and save an estimated 4.4 million pieces of A4 each year.
At the moment, it is likely that the mortgage deed will still need to be signed in the traditional manner. Although, the Land Registry is working on a wider scheme of digital mortgages and a large scale pilot of digital mortgage deeds is expected shortly.
There is a stigma around the court system in Northern Ireland that it has not progressed at the pace of its judicial counterparts, arguably to the detriment of the public. Mr Justice Gillen, has however, at the opening of the new legal year at the Royal Courts of Justice in Belfast, unveiled a new and radical reform, listing 404 recommendations to correct just that.
The reforms centralise around improving access to justice and achieving better outcomes, in particular targeting young court users. They recommend a much wider application of technology to streamline the court process. They also include a focus on rehabilitation of offenders, using mediation and alternative methods of dispute resolution rather than court hearings, and reducing the adversarial level of proceedings by including counselling and therapy in family proceedings.
Whilst the pace of change is expected to be slow, particularly given the potential requirement for locally elected ministerial approval, the long term impact is the complete transformation of the face of the court system in Northern Ireland. The ability to process cases electronically will potentially reduce costs and speed up the pace in which cases are processed in Northern Ireland.
We look forward to seeing how the system evolves over the coming years.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.