Busy lenders' round-up - October 2018
Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in retail mortgage lending and regulation.
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:
News
Lending
Focus on Northern Ireland
Focus on Scotland
News
The British Retail Consortium has reported that cards were used to pay for £277.1bn of goods in 2017, accounting for 76% of all retail sales. UK Finance has also confirmed that debit card payments overtook cash use for the first time last year, with 13.2 billion transactions against 13.1 billion cash payments over the same period.
Factors which have influenced the rise of plastic include consumers using their cards for lower-value transactions and the rise of 'contactless' payments (of which there were 5.6 billion payments in 2017), with young consumers aged between 25 and 34 being most likely to shun cash and opt for plastic.
With 3.4 million people hardly using cash at all last year, it appears that the switch to plastic could mean cash is no longer king.
The government has been urged to introduce an annual 'MOT' for all rented homes in England. A report by the University of York's Centre for Housing Policy has found a rise in poor living conditions for households on low incomes, and argues that government regulation around the private rented sector is in need of radical reform.
The report claims a property 'MOT', which would deal with things such as gas and electrical safety, would give prospective tenants confidence that a property is fit for purpose (having passed an independent inspection) and give landlords greater clarity around minimum living standards.
The report also proposes introducing a register for landlords and letting agents with it being illegal to let property without being on the register.
The proposed rules could result in increased arrears and repossessions if customers are unable to rent properties that have ‘failed the MOT’. Lenders may also need to amend mortgage conditions to reflect any changes in the law.
MEPs have approved new plans to fight terrorist financing by preventing money laundering and creating tougher cash flow monitoring.
The new rules, which are said to incorporate international best practice, make it easier for authorities to detect and stop suspicious cash flows by adopting EU-wide definitions of money laundering-related crimes and introducing EU-wide minimum penalties for money laundering. The new rules also propose to extend the definition of ‘cash’ to include gold and anonymous prepaid electronic cash cards, and to require disclosure of unaccompanied cash sent by cargo or post.
The new measures have yet to be approved by the European Council, but when this happens and the new directive comes into in force, member states will then have 24 months to pass new domestic laws to bring that directive into force in their respective countries. However, given the uncertainty around the shape of our future relationship with the EU, it remains to be seen to what extent the new measures will take effect in the UK.
The Financial Ombudsman Service (the FOS) has urged banks to treat victims of authorised pushed payment scams more fairly. Push payment scams induce authorised credit transfers from the consumer's Bank to another account, usually a fraudster's.
Historically, banks have avoided paying compensation to push fraud victims as the payments are considered to be authorised by the customers. However, the recent requirement for banks to have 24/7 fraud detection lines and faster response times will increase customer protection.
The FOS and UK Finance have reported that victims lost a total of £236m to push payment scams, with 43,875 reported cases in 2017. This equates to almost one third of the £730m lost in scams throughout 2017. According to UK Finance, the lack of redress means that victims were reimbursed only 26 per cent of the £236m lost in 2017.
Katy Worobec, managing director of economic crime at UK Finance, acknowledges that "there is more to be done" and has stated that banks will always make every effort in assisting customers in recovering stolen funds.
An Authorised Push Payment Steering Group has published a new draft industry code (the Voluntary Code) to ensure that victims who demonstrate due care are compensated. The code will be in place from September 2018 and will be publicly consulted on with a refined version due in early 2019. The regulator has suggested that the code will continue to evolve to ensure that it remains up to date. For more information on this, please see our insight: Draft Contingent Reimbursement Model Code - 5 key points
Lending
Following its 2016 consultation paper, the Law Commission has recently published its report “Updating the Land Registration Act 2002 (2018) Law Com No 380” in which it makes a series of recommendations to reform the land registration process. The government has decided not to proceed with privatisation of the Land Registry but the recommendations in the report are intended to make the law governing land registration clearer, fairer and more efficient.
Of most importance to lenders would be changes relating to the rectification of the title register, including the creation of a 10-year longstop period in which any mistake on the title register can be rectified, and limiting a chargee’s ability to object to rectification. This is likely to impact on the strategy of lenders and their ability to rectify defective titles.
Other relevant changes include:
- introducing an ability for the Land Registry to claim the cost of certain indemnity claims paid as a result of fraud from a conveyancer who has not performed proper identity checks;
- encouraging chargees to pursue indemnity claims in respect of any interests that are purely financial (as opposed to rectification of the title);
- requiring evidence of interests that people want to protect with a unilateral notice at an earlier stage, preventing disputes at tribunal.
It is intended that a bill giving effect to the proposals will be submitted to parliament in the second session. Whether parliament has sufficient time to consider the bill next year following Brexit remains to be seen.
Financial institutions are reporting seeing the beginnings of a trend in homeowners opting for five-year fixed rate mortgages as opposed to the previously more popular two-year products.
The recent rise of the Bank of England's base rate from 0.5 to 0.75 per cent, combined with the uncertainty surrounding the post-Brexit economy, has led to a belief that further rises could be on the way, resulting in more homeowners opting for longer fixed rate deals.
This is compounded by the fact that the difference in the interest rates charged on five-year products as opposed to two-year ones has significantly narrowed over recent years making them an even more attractive option especially to younger homeowners, who will have become accustomed to ultra-low interest rates.
A new 10-year fixed rate mortgage was announced by Kensington Mortgages on 26 September 2018 in an effort to give borrowers "stability and peace of mind that a fixed term mortgage brings". Rates start at 4.34% with 75% LTV.
In addition, lenders constantly altering and refining their lending criteria is thought to lead to concerns that borrowers will not be able to qualify for certain products in the future.
Latest research from Experian has revealed that the process of applying for a mortgage is the biggest challenge faced by aspiring homeowners, rather than the widely spread belief that people cannot afford deposits. With more and more customers relying on family to assist in covering initial costs, mortgage eligibility is a bigger concern for customers.
Whilst banks are recognising the benefits of the certainty offered by five-year fixed rate mortgages, they warn customers to balance this against the fact that they are limiting their flexibility.
The Financial Conduct Authority (the FCA) has expressed its concerns for the 30,000 borrowers falling into the category of "mortgage prisoners", and says it is devoted to finding a solution.
The term "mortgage prisoner" is used to describe those borrowers on the worst interest rates who find themselves unable to secure more beneficial mortgage terms following the financial crisis, despite meeting their mortgage obligations.
Earlier this year, the FCA initiated discussions with active lenders and trade bodies to ascertain what might make these customers more attractive to lenders.
An initiative led by UK Finance, the Building Societies Association and Intermediary Mortgage Lenders Association in July this year has resulted in 59 lenders agreeing common standards to assist those consumers described as mortgage prisoners.
Whilst it has been acknowledged that almost all of the 30,000 mortgage prisoners identified by the FCA would benefit from switching to a new product, only 10,000 of them are said to have mortgages with "active" finance providers i.e. those that are still actively lending to new or existing customers. Thus leaving 20,000 customers trapped in "pre-crisis" mortgages with providers unwilling or unable to assist.
It is therefore likely that any "internal switch agreements" will only assist the 10,000 mortgage prisoners holding mortgages with 'active' lenders.
For those 20,000 who remain in mortgages with lenders who are no longer actively advancing finance, the solution will be more difficult to identify.
Focus on Northern Ireland
The University of Ulster has released the results of the first major study of Personal Litigants, including their circumstances and experiences in the Northern Ireland Court System.
The study focussed mainly on Personal Litigants in civil and family matters and suggested that the Court System was not designed with Personal Litigants in mind. Personal Litigants reported feeling out of place and they indicated that the main barriers to effective participation in the Court System appeared to be the following:
- The expectation that Personal Litigants are to fit into the system as lawyers do;
- Difficulties faced by Personal Litigants in accessing relevant advice, resources and information;
- The limits to their knowledge and understanding of legal issues; and
- Negative or debilitating emotions and high levels of anxiety.
The recommendation arising from this study is that the Court should implement measures to assist Personal Litigants to participate effectively in proceedings which should help achieve substantive and procedural justice. One recommendation is the creation of a Personal Litigant Liaison/Support Unit which is staffed with a qualified lawyer to provide procedural (not legal merit) advice to Personal Litigants.
Lenders will be aware that many of their customers are not in a position to obtain legal advice in litigation proceedings. Often they will appear as Personal Litigants. This study and its recommendations could prove helpful for lenders, their lawyers, and Court officials in highlighting these issues and assisting the parties in ensuring that Personal Litigant customers receive a fair trial from the Court.
Focus on Scotland
Scottish Building Society is introducing a 'retirement interest-only mortgage' geared towards older borrowers.
The product is designed for homeowners in Scotland aged 60 and above (with no maximum age limit) with a regular and "reliable" monthly income.
This relatively new product follows on from the Financial Conduct Authority's review of its approach to later life lending in March of this year, where it redefined retirement interest-only mortgages so that they are treated the same as standard mortgages rather than under stricter equity release standards.
Paul Alexander, head of business development at Scottish Building Society, has stated that the Society is expecting high demand for the retirement interest-only product, especially when older borrowers become aware of the benefits. Mr Alexander said that this may be a more suitable option than equity release and provides an alternative to a house sale or expensive loan repayments.
This new approach takes into consideration various socio-economics that are becoming growing trends in today's society and are likely to endure into the future. Such trends include borrowers who are working later in life and the growing population of mature borrowers.
In theory, this sounds like a viable new product but it is unclear what the affordability criteria consists of and whether lenders will set eligibility criteria too high, limiting the number of mature borrowers who can benefit. Tipton and Coseley Building Society launched their product for England and Wales in June 2018. However, it remains to be seen whether this approach will be considered by other lenders.
Contributors:
Lynsey Robinson
Ben Spivey
Michael Seddon
Claire Pleece
Eleanor Dunkley
Emily Symes
Brendan Logue
Jennifer Whitwell-Claydon
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions
