Welcome to TLT’s busy lenders' round-up. We summarise the latest news and developments in retail mortgage lending and regulation.
Focus on Scotland
Focus on Northern Ireland
The Pre-Action Protocol for Professional Negligence (the Protocol) has been amended to include a requirement for claimants to consider adjudication at an early stage in proceedings.
The amended protocol came in to force on 30 April 2018 and applies to all professional negligence claims excluding construction & engineering, medical and defamatory disputes.
The Protocol now requires claimants to indicate, in their letter of claim, whether they agree to refer the dispute to adjudication and, if so, to list three proposed adjudicators or, alternatively, seek a nomination from the nominating body. If claimants do not wish to adjudicate, they should give reasons for not doing so. The Protocol does not make adjudication mandatory and parties are allowed to give reasons why they do not consider it appropriate.
When pursuing claims for lenders, settlement is often discussed at the early stages, without resorting to the court process. This is unlikely to change. For more complicated litigation, or where the parties are stuck, the scheme could provide an alternative to court proceedings. Please contact us if you would like specific advice on individual cases.
Under the County Court (Interest on Judgment Debts) Order 1991 and Civil Procedure Rules 1998, interest on County Court judgments becomes payable from the date of the judgment. However, the Civil Procedure Rules contain an additional rule allowing the court to award interest from an earlier date. The Civil Procedure Rules Committee is considering this conflict.
Although the courts do not generally use this additional rule, the Ministry of Justice would like a policy decision on the issue.
From a lender's perspective, the effect of the conflict should be limited – judges are reluctant to use this power and contractual provisions should cover the period before judgment. Given that the committee is considering this issue, it may also take the opportunity to assess whether 8% interest on judgment debts remains reasonable.
Which? Consumer group has called on the FCA to impose limits on unarranged overdraft fees which can cost borrowers up to seven times more than a payday loan. Out of 16 high street banks, Which? found that 13 of these charge (sometimes considerably) more than payday lenders when comparing the cost of borrowing £100 for 30 days as an unarranged overdraft.
The regulator's chief concern is that it has not been able to determine a proportionate relationship between the level of the unarranged debt and the fees charged, citing examples where fees of £8 per day are charged for excesses of less than £1. The FCA has targeted this issue for "fundamental reform".
The FCA is continuing to investigate this issue and gather evidence but appears determined to take action, once it has considered the wider consequences of limiting the fees applied to unarranged overdrafts. The FCA published initial proposals for reform of unarranged overdrafts on 31 May. The issue will be revisited in the regulator's Strategic Review of Retail Banking, due later this year.
The Bank of England’s (BoE's) Financial Policy Committee (FPC) is considering increasing capital buffer requirements. This concern arises from growing consumer debt and more readily available mortgage finance.
The FPC is due to make a final decision on this point in June but has indicated that it may increase capital buffers to a little over 1% of a bank’s risk-weighted assets (the level that has been in place since Q1 2016). It appears that the BoE intends to wait for further clarity on the Brexit negotiations (and the potential impact on the economy) before taking any concrete steps. In any event, the FPC has committed to a gradual increase in capital buffers, if this initiative is to be implemented, in order to counterbalance lenders' appetite for risk.
The BoE highlighted the increasing availability of higher loan to value ratio mortgages and increases in mortgage lending edging towards the 4.5 times the income cap established in 2014. The Bank has also expressed concern that a large proportion of households would struggle if interest rates rose by 2% or more.
Simon Walker CBE (former Director General of the Institute of Directors) has been appointed as the independent chair of the finance and banking industry’s review into the complaints and alternative dispute resolution for the SME market, commissioned by UK Finance.
The review will concentrate on unresolved disputes between financial services providers and small business customers that may not be suitable for litigation.
The aim is to determine the most effective way in which to deal with SME complaints and follows the recent expansion of the Financial Ombudsman Service's remit to include complaints brought by SMEs that meet certain criteria. The goal is to build a process capable of delivering fair outcomes for both SMEs and lenders.
Since 6 April 2018 Local Authorities have been able to obtain a banning order against landlords, preventing them from leasing properties for a period of time (ranging from 12 months to life). Banning orders can be used if landlords commit any of a range of offences, eg breaching fire and gas safety regulations, leasing overcrowded properties or unlawfully evicting tenants. Details of the banning order are entered onto a national database in order to share that information with other Local Authorities. If a banning order is made against a customer, lenders may wish to consider appointing receivers to take over management of the property.
P&P Property Ltd v Owen White and Catlin LLP and Crownvent Ltd t/a Winkworth (P&P) and Dreamvar (UK) Ltd v Mischcon de Reya and Mary Monson Solicitors Ltd (Dreamvar)  EWCA Civ 1082
In May, the Court of Appeal ruled on which professionals should be liable when property is fraudulently transferred without the property owner's knowledge or consent. This judgment has important implications for lenders who find themselves without security in such circumstances.
Specifically, the decision provides lenders with another professional whom they may have a valuable claim against when they are the victim of these frauds - the seller's solicitors who acted for a fraudster impersonating the true owner of property.
In property hijack cases, we recommend that you now look to preserve claims against the seller's solicitors and the purchaser's/your own solicitors as, following this ruling, there may well be a claim against both. You should also put the Land Registry on notice of a claim (if registration takes place).
For further information, please view our article: Landmark Court of Appeal ruling on property title fraud.
Machine learning and Artificial Intelligence (AI) are becoming important tools for preparing stress test submissions in a bid by banks to detect fraudsters, mitigate risk and make operational cost savings.
Figures published in March 2018 by UK Finance revealed that last year, banks and card companies prevented over £1.46 billion in unauthorised fraud.
The Financial Stability Board report noted that in the US, machine learning techniques for the Securities and Exchange Commission were “five times better” than random searches for finding “language that merits referral to enforcement”.
One of the most prominent applications for AI in finance is fraud detection.
Alexey Utkin at Global Technology Consultancy Data Art has spoken of a case where a fraud was detected by a large bank because the perpetrator “used the scroll bar while logged in” where a real user would have used the track pad.
AI enables the analysis of significant amounts of data and is helping banks decide whether a borrower will meet loan repayments. This enables them to lend confidently to those that pass the machine's risk tests.
A report published in October 2017 expected credit decision times to fall by 25 – 50% because of AI and credit losses “may fall by up to 10%”.
AI also offers significant advantages for banks in anti-money laundering and terror financing checks. That said, there is a lack of “auditability” with AI which presents its own risks and could have negative effects.
The Bank of England (BoE) has established a fintech hub to provide a central point of contact for the fintech sector and a new cryptocurrency task force, with a view to regulating this rapidly emerging area. The Chancellor's announcement came in apparent response to the growing suggestion that China is well placed to establish itself as the global fintech capital.
The ‘crypto-assets task force’ will consist of BoE and FCA staff. Its mission will be to assess the benefits and risk of the fintech sector which currently contributes £6.6 billion to the UK and employs around 60,000 people.
Whilst the Bank of England's Governor, Mark Carney, has previously said that crypto-currencies (e.g. bitcoin) have failed as forms of money, these steps indicate that the BoE anticipates technological developments could change the position.
On 1 May 2018, the Scottish Parliament passed the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. MSPs of all parties welcomed the Bill as it passed unopposed at stage 3. The Bill implements recommendations of the report on the funding of civil litigation by Sheriff Principal James Taylor and seeks to create a more accessible, affordable and equitable civil justice system.
The legislation marks a significant change to the funding of civil litigation in Scotland. Among other provisions, Part 1 of the Bill provides for the regulation of success fee agreements. This means that for the first time in Scotland, damages based agreements (DBAs) can be enforced by solicitors. It should be noted that the legislation provides Scottish Minsters the ability to cap fees, ensuring that these are not unduly onerous.
The aim of the introduction of DBAs is to create greater accessibility to the civil justice system. However, such a provision runs the risk of opening a floodgate of claims from those who would have been previously reluctant to enter court proceedings due to the potential costs involved. Accordingly, lenders could face a rise in speculative claims brought against them.
The Bill also introduces provisions for "Group Claims" to allow proceedings by two or more parties.
The present intention of the Scottish Parliament is to commence a phased implementation of the Bill from summer of 2018, with a formal review to be undertaken after a period of five years.
The average house price in Northern Ireland has seen a rise of 4.2% between the Q1 2017 and Q1 of 2018 according to the House Price Index released by Land & Property Services.
The Index indicates that the average house price in Northern Ireland, as at 24 May 2018, sits at £130,026.00.
UK Finance data released on 23 May 2018 provides uploaded statistics for the mortgage market in Northern Ireland and indicates that the first Quarter of 2018 saw 2,200 new first-time buyer mortgages completed (a 10% increase on last year), 1,400 new home mortgages (a 16.7% increase on last year) and 2,300 new homeowner remortgages (a 9.5% increase on last year).
The data indicates an average first time buyer loan of £96,375.00, which represents an increase of 1.4% over 2017.
According to UK Finance figures, Northern Ireland has had the strongest first Quarter in 2018 across the whole of the UK.