Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in retail mortgage lending and regulation.
Focus on Northern Ireland
Focus on Scotland
This month The Housing, Communities and Local Government Committee is further considering the call for leasehold reform following the Government's consultation in 2017 on 'Tackling unfair practices in the leasehold market'. The committee will hear from The Law Commission, lenders and legal specialists as the Government plans to overhaul the leasehold system.
The committee will consider issues such as mis-selling, unfair ground rents, high service charges and other onerous leasehold terms faced by home-owners and lenders. The committee will also review what more can be done to drive forward the use of Commonholds.
The commission is inviting submissions on the suitability of the Government's proposed leasehold reforms and how its implementation can be supported.
Online auctioneer, Clicktopurchase, has reported its platform as being the first in Britain to sell a property via an automated auction process.
Before placing bids, prospective bidders must register with the site. This requires details of their solicitor, who must sign and return a money laundering certificate, to confirm the bidder's identity.
The platform uses an artificial intelligence system to handle online bids. The successful bidder automatically enters into a binding contract which has been digitally signed on their behalf by the platform.
Digital property contract signatures are still very much in their infancy, with the first recorded e-signature taking place in relation to a private treaty contract back in April 2017. However, this appears to be the first time digital signatures have been linked to an auction contract.
It remains to be seen whether this technology will replace the traditional forms of auctions. A large part of the role of auctioneers relates to the promotion of properties entered into auction. Holding a physical auction event helps to create an atmosphere which may boost the sale of properties and a skilled human auctioneer may encourage bidding. In contrast, an online auction would be more clinical.
Lenders who are considering entering a property into auction should be mindful of their obligations to get the best price for the property. This means making sure the auction is appropriate and has a large enough pool of potential bidders. It also means ensuring an appropriate reserve price is set.
Last year the Government's consultation on strengthening consumer redress in the housing market received over 1,200 responses. Following on from this the Communities Secretary, James Brokenshire, has announced a new Housing Complaint Resolution Service.
Mr Brokenshire commented that the housing market has several different complaints bodies, with homeowners and tenants having to navigate their way through a complicated and bureaucratic system just to work out where to register a grievance.
The new service will create a one stop portal for all complaints from consumers relating to landlords and developers.
As part of the reforms the Government will also introduce legislation requiring all private landlords to belong to a redress scheme and create a New Homes Ombudsman to hold developers to account.
A new redress reform working group is being set up to develop the resolution service and we will report again once further details become available.
Lenders may wish to consider reviewing their buy to let mortgage conditions to ensure that new landlord customers will be obliged to comply with the proposed legislation to join a redress scheme. In the future lenders may also want to consider whether they want to collect evidence of membership of such a scheme as part of their underwriting processes.
On 14 December 2018, the Financial Conduct Authority (FCA) published new rules making changes to its Dispute Resolution: Complaints Sourcebook (DISP) in relation to victims of authorised push payment (APP) fraud and misdirected payments.
APP fraud happens when fraudsters deceive account holders into sending them a payment under false pretences. Previously, the sending payment service provider (PSP) but not the receiving PSP was required to handle complaints relating to APP fraud in line with DISP. Complaints about the actions of the receiving PSP were also outside the jurisdiction of the Financial Ombudsman Service (FOS).
However, from the 31 January 2019, the complaints handling obligations also apply to the receiving PSP in relation to its acts or omissions after that date. This includes any complaint that the receiving PSP did not do enough to prevent or respond to an alleged APP fraud.
Eligible complainants can then refer their complaints to the FOS where they're unhappy with the outcome reached by the receiving PSP or where no response has been received within the prescribed eight-week period.
The jurisdiction of the FOS has also been extended to cover complaints relating to insufficient co-operation between PSPs in recovering funds which were mistakenly sent to the wrong account due to incorrect payment details. These new rules apply to complaints about acts or omissions from 13 January 2018.
These are the latest developments in the on-going efforts to guard against APP fraud and to provide greater protections for consumers.
According to Esurv, the number of mortgages approved in November 2018 was up 4 per cent compared to 2017 due to the low rates offered by mortgage lenders, which has made the re-mortgage and first-time buyer market more competitive. The Bank of England's (the BoE) Mortgage Lenders and Administrators statistics substantiate this, revealing that 21 per cent of new lending in the third quarter of 2018 was provided to first-time buyers.
However, figures released by LMS, a conveyancing firm, reveal an 'advice gap' in the re-mortgage process, in comparison to the wider mortgage market. These figures show that 1,155,000 homeowners changed products with an existing provider in 2018, equating to more than £150bn of mortgage debt being refinanced internally. LMS has predicted that 47% of those transfers were made by customers without obtaining advice (execution-only). Nick Chadbourne, chief executive of LMS, has encouraged borrowers to seek broker advice on the basis that further savings could be made.
The BoE's statistics also found that the value of outstanding mortgage balances with arrears has increased for the first time since 2016. The value was £14.5bn in the fourth quarter of 2018 compared to £14.3bn in the previous (third) quarter. Nonetheless, the BoE emphasises that the arrears balance is only 1% of the total loan balance.
Mark Pilling, managing director at Spicerhaart Corporate Sale, predicts a further rise in mortgage arrears. Credit card debt stood at £17.1bn in October 2018, which is 11.6% higher than the same month in 2017. Mr Pilling has warned that whilst people are able to stay afloat by using credit cards for everyday purchases, should rates begin to rise, many people may struggle to make their monthly mortgage payments.
Last month we reported that mortgage arrears would be excluded from statutory repayment plans meaning lenders would continue to be free to make their own arrangements with customers. It has come to our attention that mortgage arrears will be "excludable" from the plan at the request of the customer or their debt advisor. This would, in fact, prevent lenders from agreeing their own separate arrangements with customers.
The effect of mortgage arrears being included within a statutory repayment plan would prevent lenders from charging interest on the arrears subject to the plan. As lenders generally charge interest on the whole outstanding balance rather than just the arrears this may involve development to lender's systems to accommodate the change.
There have been many news stories about mortgage prisoners following the financial crash and this has put pressure on the FCA to consider what it can do to help.
Andrew Bailey, FCA Chief Executive, has sent a letter to the Treasury Committee confirming that there are around 20,000 customers with inactive lenders (authorised but no longer lending) and 120,000 with unregulated firms who are not authorised to lend. He has stated that more needs to be done to break down the regulatory barriers preventing mortgage prisoners from being able to switch.
The data held for mortgages with unregulated firms is limited - the current indication is that many of their loans are interest-only, high loan-to-value and/or credit impaired. The FCA is proposing to place a reporting obligation on firms who administer these mortgages to gain a better understanding of the data.
For customers of firms who are inactive or not authorised to lend, the FCA is proposing moving from an absolute affordability test to a relative test i.e. whether the new mortgage costs are more affordable than the current costs.
Consultation is on-going and at a recent roundtable meeting there was some indication that active firms would be willing to consider offering re-mortgages to some of these customers. Whilst things are moving in the right direction, there is no doubt that there is a long way to go for customers of inactive or unauthorised firms. Indeed, those who have impaired credit histories may still have to serve the full term.
The Competition and Markets Authority (the CMA) has called on the Financial Conduct Authority (the FCA) to fix the 'loyalty penalty' – where loyal customers are overcharged compared to new customers who are normally eligible for an introductory deal. In particular, the CMA has suggested that the FCA identify the measures which could be taken to assist or protect mortgage customers who could switch but do not and who therefore face unfair penalties.
The CMA has also advised the FCA to encourage consumers to provide intermediaries with access to their information. By doing so, this could speed up processes such as affordability assessments and ultimately benefit the mortgage market.
However, the CMA notes that 'collective switching' is unlikely to be an appropriate remedy, given the high switching rates and other factors which affect mortgages.
The CMA's recommendation follows the super-complaint raised earlier in 2018 by Citizens Advice, which alleged that the practice of overcharging loyal customers was prevalent. The charity reported that loyal customers lost £4.1bn a year across the following markets: mortgages, savings, home insurance, broadband and mobile. In its banking review released in December 2018, the FCA confirmed that it is taking steps to address this issue, acknowledging that loyal banking customers were not always receiving good value for money.
Gillian Guy, chief executive at Citizen's Advice supports the CMA's comments and considers it a "strong response".
The CMA and FCA are expected to provide an update on their progress to the joint government and regulator Consumer Forum in six months' time.
New estimates suggest that some £3.6bn of property wealth was released in 2018, a 19% increase on the previous year. When drawdown (i.e. staged release) plans are taken into account, this figure rises to £4bn.
The consistent growth in this market reflects the new and innovative products on offer from lenders in this area. There is much greater choice than previously, and products are being marketed more prominently to form part of retirement planning. With no sign of growth slowing, Legal & General has announced that it will now offer CII-accredited workshops for mortgage intermediaries to support them as they transition into the retirement lending sector.
According to Key, many homeowners are using released funds for home improvements, but some are also releasing funds to pay down other debts or help with regular bills. Nearly a third of homeowners are using the equity to gift money to family and friends, typically to fund house deposits or clear debts.
Although the industry has historically suffered reputational concerns, chairman of the Equity Release Council, David Burrowes, commented that “Today’s market is built on a combination of increasing choice and robust consumer safeguards".
The market has doubled in size in the last three years and is predicted to grow dramatically again in 2019, with some estimating that it will be worth at least £6bn by the end of this year.
The Finance & Leasing Association (FLA) has recently been made aware that claims management companies (CMCs) are contacting financial services firms and requesting that they furnish the CMC with details of current and historic mortgage contracts.
The communications ask firms to furnish the CMC with a full set of all Standard Mortgage Conditions over a 25 year period, and suggest that, if these are not provided, the CMC will send a Data Subject Access Request (DSAR) (on behalf of their clients) which the firm must respond to pursuant to General Data Protection Regulation (GDPR).
It is thought that the CMCs would use these historic terms to leverage potential claims against firms. While most requests have been received by secured lenders to date, it is felt that the CMCs could also target the unsecured credit sector as well.
The FLA has advised that copies of historic contract terms are not categorised as ‘personal data’ for the purposes of the GDPR. As a result, there is no regulatory requirement to disclose this information to CMCs as part of a DSAR request. Firms must, however, continue to respond correctly to a legitimate DSAR request from a customer seeking copies of past Terms and Conditions that relate specifically to their own account.
If you have received this type of information request from any CMCs, the FLA has asked that you inform them. If you require assistance with GDPR or DSAR requests, please contact us.
A recent judgment in the Chancery Division of the High Court in Northern Ireland delves into the suitability of McKenzie Friends who intend to assist Personal Litigants. The judgment, delivered on 20 December 2018 in the matter of Nicholas Brennan as Fixed Charge Receiver of Pinpoint Property Ltd t/as Morton Pinpoint & Iraina Kerr as Fixed Charge Receiver of Pinpoint Property Ltd t/as Morton Pinpoint , comes not long after the University of Ulster published its study on the experience of personal litigants in the Northern Ireland Courts.
A McKenzie Friend is a lay person who the Court authorises to provide reasonable assistance to a personal litigant in Court proceedings. McKenzie Friends have no right to act as advocates or to conduct litigation. They can provide moral support, take notes and give quiet advice to the litigant. There is a presumption in favour of permitting a McKenzie Friend. However, a personal litigant may be denied the assistance of a particular McKenzie Friend if it might undermine the efficient administration of justice.
The Defendant in the case requested the assistance of a Mr Ben Gilroy as his McKenzie Friend.
The Plaintiff objected to Mr Gilroy's appointment and referred to a Republic of Ireland Judgment delivered on 10 September 2018 (the Irish Judgment) which restrained Mr Gilroy from acting as a McKenzie Friend or bringing any litigation in the Republic of Ireland.
In delivering the Judgment, the Northern Ireland High Court considered the Irish Judgment and the details of Mr Gilroy's behaviour throughout. The Judge ordered, in favour of the Plaintiffs, that Mr Gilroy would be prevented from acting as a McKenzie Friend in this matter.
As the first Judgment of its kind in Northern Ireland, this provides some guidance for lenders and receivers where serial or disingenuous "McKenzie Friends" attempt to disrupt the Court process or delay the administration of justice.
The written Judgment has not yet been published online.
The introduction of the Private Housing (Tenancies) Scotland Act 2016 opened up a new route of redress for lenders and landlords with cases being dealt with by a specialist judicial body, the First-tier Tribunal for Scotland (Housing and Property Chamber) (FTT-HPC) rather than Sheriff Courts for the private rented sector.
The First-tier Tribunal for Scotland Housing and Property Chamber (Procedure) Amendment Regulations 2018 look to amend the existing regulations in order to fill in the gaps to ease the new procedure and extend the FTT-HPC's powers. A large part of the 2018 Regulations come into force on 20 February 2019.
The amendments include the ability to serve applications by advertisement on the FTT-HPC's website where a tenant's address is unknown; extending the FTT-HPC's powers to be able to regulate its own procedure; allowing interest to be added to applications for payment; and the introduction of Time to Pay Orders. The regulations seek to make the current procedure similar to the procedure formerly carried out in the Sheriff Courts.
A recent case brought forward by Santander to the FTT-HPC shows that this new procedure could make it easier for a lender to obtain a possession order against a tenant. The decisions released by the FTT-HPC are worth keeping an eye on to see if the amendments simplify this process even further.
Chessie Da Parma
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.