Welcome to TLT's busy lender's monthly round-up. Each month we summarise the latest news and developments in mortgage litigation and regulation.
The independent Financial Ombudsman Service has advised that it has come across a number of cases where frail elderly borrowers have been faced with selling their homes in order to repay mortgages.
In one instance, involving the Yorkshire Building Society, the Ombudsman ruled to take into account the borrower's age and circumstances, and that the loan should be converted into a mortgage without a set end.
A spokesman for the Yorkshire Building Society commented "We look at each case on its merits and make decisions based on the individual circumstances".
The government has announced plans to expand its help-to-buy scheme with a view to lending 40% of the price of a London home from 2016.
Currently, help-to-buy equity loans are open to both first-time buyers and home movers on new build homes in England with a purchase price up to £600,000 - with borrowers contributing a deposit of at least 5% and the government lending up to 20% of the value of the property. Mortgage finance covers the balance.
The government has pledged to increase the amount it will lend to borrowers in London to 40%, in order to off-set high house prices.
October 2015 was the busiest month for mortgage lending since the summer of 2008.
Gross mortgage lending reached £12.9 billion in the month, 26% higher than in October 2014. This was a result of a 21% increase in mortgage approvals when compared with the same period last year. Remortgaging increased by 34% year on year.
The average value of mortgages applied to purchases was £175,600, whilst average remortgage advances were slightly lower at £172,800.
Unsecured loan lending has also increased by 5% over the past year. In October 2015, £228 million was borrowed by way of personal loans and overdrafts, more than double the figure advanced in September 2015.
Borrowing on High Street Bank credit cards also increased by 5% in October 2015, which outstripped the 3.9% growth achieved by the wider credit card market in the same period.
The rise in figures is attributed to improved credit availability, low interest rates and strengthening household finances.
Confusion around mortgage costs has been a common complaint by customers for many years but following a Which? campaign to end customer confusion, the Chancellor of the Exchequer approached the Council of Mortgage Lenders (CML) to find a way to make it easier for customers to understand the costs associated with mortgages and to compare the costs.
The CML, in connection with Which? has responded by developing a "tariff of mortgage charges". The tariff will explain in a standard format what fees a lender will charge, and in what circumstances the fees will be charged. For example – early redemption and missed direct debit payments. The tariff will introduce user friendly terminology in a standard format which will allow customers to easily compare mortgage products.
85% of lenders have already agreed to introduce the tariff by the end of the year with a standard comparison method being made available early next year.
CML director Paul Smee has complimented the lenders who have "successfully pulled together to put in place some sensible measures to help consumer understanding".
An internet lender plans to lend borrowers as much as they want providing that they have an appropriate social media profile.
Stringent Financial Conduct Authority (FCA) rules do not allow self-certified mortgages in the UK, but a new start up, selfcert.co.uk, funded by private investors, is hoping to acquire a licence from an eastern European country, which will allow it to lend in the UK as long as it conducts its business from that country. It is looking at ways of assessing potential borrowers based on their social media accounts.
First-time buyers up 16 % in Scotland in third quarter
The Council of Mortgage Lenders (CML) has released mortgage lending statistics for the third quarter in Scotland this year and the data has revealed there were 8,500 first-time buyer loans totalling £920 million. Both the volume and value of the loans have increased by 16% from the third quarter in 2014.
There were 18,500 home-mover loans (a 12% increase from the second quarter in 2015 and a 15% increase from the third quarter 2014), with the value of lending increasing to £1.5 billion.
In terms of remortgage loans, the volume made remains at 6,800, the same as the second quarter in 2015 but a 15% increase from third quarter 2014. The value of loans has increased slightly to £820 million.
Linda Docherty, CML chair for Scotland, commented:
"The past two quarters have seen the highest level of borrowers purchasing their home in Scotland since 2007. Activity has remained robust over the past six months, with a surge in both first-time buyers and home movers, and with an economic climate of low interest rates, increased earnings and competitive mortgage offers we would expect this to continue as we head towards the New Year."
Cushman & Wakefield (Commercial Property and Retail Estate Agents) has recently released its "Main Streets Across the World" report for 2015 and it shows that Edinburgh retail rents have risen by 5.3% on Princes Street to £200 per square foot for Zone A retail space.
The report ranks over 500 of the top retail streets around the world by their rental value and illustrates that, despite concern over the future of the high street, rental value has increased in 35% of the streets.
Glasgow's Buchanan Street remains the most expensive street in the UK outside of London, with rents of £260 per square foot. The arrival of flagship stores from well known brands and the redevelopment of the upper part of the street have contributed to the street’s popularity with retailers.
Scottish success aside, London's New Bond Street has reported a 12% increase in rents to £1,400 per square foot. This cements London's position as the most expensive city in the UK for retail space.
The most expensive street in the world is New York's Upper 5th Avenue with a rent of €33,812 per square metre, Causeway Bay in Hong Kong has a reported rent of €23,178 per square metre per year, and the Avenue des Champs Élysées in Paris remains the most expensive retail location in Europe with rent of €3,255 per square metre.
Justin Taylor, Head of Europe, Middle East and Africa (EMEA) Retail at Cushman & Wakefield, said:
“Improving employment prospects, rising real wages and healthier consumer confidence in advanced economies are set to offer more positive momentum for the retail sector. From an EMEA perspective, despite any economic and political uncertainties in certain countries, the retail market is expected to see further improvements. Indeed, a strong retail sales growth forecast, robust occupier demand and a lack of supply in many locations mean rents will keep rising in the most popular high streets. Tight availability is shaping the retail landscape, pushing the geographic boundaries of well-established high street markets outwards.”
In January of this year, the coalition government ran a consultation about court fees for possession claims. It was proposed that the court fee for possession claims would be increased by £75.00 to £325.00 and that the court fee for possession claims issued online would also be increased by £75.00 to £325.00.
The results of the consultation were published in July and a majority of 92% of the respondents disagreed with increased fees. Despite the respondents' feedback, it was anticipated that draft legislation to effect the increased fees would be published in September 2015.
On 11 September 2015, the Justice Committee (which examines the expenditure, administration and policy of the Administration of Justice and associated public bodies) added the proposed possession claims court fees to a wider parliamentary enquiry on court and tribunal fees. The original deadline for submitting evidence to the enquiry was 30 September 2015. However, the Justice Committee has confirmed that it is continuing to accept new submissions to the enquiry.
Possession claim fees will not increase until the parliamentary enquiry has concluded and there is no available timescale as to when the enquiry will be concluded.
In March 2013, the Financial Policy Committee of the Bank of England recommended that regular stress testing of the UK banking system should be developed to assess the system's capital adequacy.
Following a review of adopted lending criteria, the Bank of England has put banks on notice about holding a £10 billion capital cushion to guard against another economic downturn.
Seven major lenders were subject to Bank of England scrutiny when it put their lending criteria under the microscope by applying a hypothetical scenario. The "stress test" scenario was designed specifically to assess UK banks and building societies resilience to a deterioration in global economic conditions.
On what commentators dubbed "Super Tuesday" for the banking sector, the Bank of England announced the results of its stress tests. The banks passed the overall thresholds set by the Bank of England and those which did not meet the policymakers’ judgment-based assessment of their capital strength, have already taken steps to improve capital.
The Bank of England suggested that the banking system had moved out of the post-crisis phase and it was "actively considering" whether banks should start to put capital aside in anticipation of future downturns.
It is the buy to let (BTL) mortgage market which appears to be of concern. While the Bank of England did not take immediate action to cool this sector (in which lending has risen 10% in the first nine months of the year compared with 0.4% in owner-occupied properties), it advised that it was reviewing the lending criteria adopted and is "ready to take action".
Mark Carney, the governor of the Bank of England said: "In the process of increasing capital requirements there will be cost passed on to borrowers that will have an impact on demand and some impact on inflation." The Bank of England will announce in March 2016 whether it intends to put countercyclical buffers in place, and each bank’s current capital will be assessed between now and then.
In October 2015, the Financial Conduct Authority (FCA) stated that it would consult on introducing a deadline for making PPI complaints, accompanied by a consumer communication campaign and on new rules and guidance for handling complaints. It has now published a consultation paper on these proposals.
The review was prompted by the Supreme Court's decision in Plevin v Paragon Personal Finance Ltd. In that case, the Court ruled that if a large element of commission is contained within the PPI premium, which the customer was not made aware of, then this could give rise to an "unfair relationship" for the purpose of Section 140 of the Consumer Credit Act 1974.
The consultation paper sets out the full detail of the proposed new rules and guidance, the evidence considered, the reasons for the proposals and an assessment of costs and benefits. It also outlines the proposed consumer communications campaign and proposals in relation to funding.
Those with views on the proposals have until 26 February 2016 to submit observations.
The Chancellor has set a target of building 400,000 new affordable homes by the end of the decade. This is the largest house building programme since the 1970s and plans are afoot to inject some £2.3 billion of public money to achieve the goal.
The plan represents great news for national house builders who have seen their share prices increase by up to 46% so far this year, with the sector trading on average at 1.9 times book value, fuelled by increased demand, the help-to-buy scheme and falling (bare) land prices in some parts of the UK.
The two initial obstacles for the industry to overcome as it implements the plan are a lack of skilled labour (resulting in rising costs) and planning delays. The latter is expected to become an even more contentious issue if central government devolves further powers to regions. To combat this, the government has pledged to implement planning reforms to cut through red tape and expedite construction.
It is hoped that an increase in the number and quality of apprenticeships in the building trade will have a positive effect on the current skill shortage suffered by the industry.
The FCA has focused its attention on SMEs in its recent discussion paper published on 27 November. This is part of a wider paper from the regulator on whether there is an adequate level of protection provided to SMEs in its rules and guidance.
It asks two important questions regarding access to the FCA and the redress available from Financial Ombudsman Service in respect of SMEs.
The most significant consideration is whether it should raise its current redress limit of £150,000 available to small business complainants.
Christopher Woolard, director of strategy and competition at the FCA, said: "Small businesses are a vital part of the UK economy. We need to consider whether we're doing our part in delivering an effective, proportionate regulatory framework that gives them the confidence required to use the financial services they need to grow. We want people to tell us whether our rules are appropriate: do they strike the right balance between protecting small businesses and encouraging firms to offer services to SMEs, to compete and to innovate?"
The FCA is keen to promote and establish SME confidence in their dealings with financial services. The FCA is also asking whether access to the FOS should be extended to more SMEs.
Currently only a small minority of SMEs are unable to make complaints to the Ombudsman. However, the businesses unable to do so account for a substantial share of the sector’s demand for financial services, and some of them are likely to be less experienced dealing with financial products and services despite their greater size, the regulator has said.
The FCA is also considering whether the financial services industry could use voluntary standards such as the Lending Code to further improve the experience of small businesses, and asks what the high-level ambition for such Codes should be.
On 1 April 2016, stamp duty on second homes will increase by 3%. In a move widely criticised by the buy-to-let sector, the Chancellor, announced the new measure during his Spending Review. He also announced that the housing budget will be doubled to £2 billion.
Although institutionally backed investors will be exempt from the increase, stamp duty will effectively quadruple and it is likely to be detrimental to future investment in buy-to-let properties.
The tax increase is part of the housing plan introduced by George Osborne which hopes to build 400,000 affordable homes in the next five years.
In Claverton Holdings Ltd v Barclays Bank plc, the claimant requested disclosure of similar mis-selling complaints made against the defendant. Specifically, it sought information in relation to complaints which had resulted in either admissions by the bank, or findings by the Financial Ombudsman Service and the Financial Conduct Authority. The Court rejected the request and held that any reference to other complaints was irrelevant. The reference would amount to nothing more than confirmation of other allegations.
The judgment will be used by financial institutions dealing will onerous requests for the disclosure of complaints similar to those that are the subject of the legal proceedings and more generally, it confirms that allegations in other claims are not evidence of liability.