Welcome to TLT’s busy lenders’ monthly round-up. Each month we summarise the latest news and developments in retail mortgage lending and regulation.
Peer to peer
Focus on Scotland
In a speech at Payexpo 2017, the FCA's director of retail banking supervision, Karina McTeague, outlined the FCA's regulatory priorities for retail banking. The key themes were:
Increased innovation – The introduction of PSD2 and the launch of Open Banking on 13 January will allow new entrants and existing providers to offer new and improved services to consumers for managing their finances through online and app-based commerce. The FCA hopes that increased competition and innovation will lead to a more convenient and cost-effective outcome for both consumers and banks.
Significant legislative change – The Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication (RTS) legislation will take effect in mid-2019. During the transition period, the FCA expects firms to adhere to the principles of safety and security. This means credentials and data should be transmitted securely to safeguard against interception and illegitimate access.
The risk landscape – The FCA expects firms to have appropriate security measures, policies and processes in place to protect against cyber-attacks; work together as an industry to limit the impact of fraud; and put the interests of their customers at the heart of their business models.
The Royal Bank of Scotland is launching an automated online investment "robo-advice" service, offering tax, inheritance planning and financial advice to its five million customers. It is said to be the first bank to offer this type of service in the UK and unlike any other investment site.
The process costs £10 plus fund investment and platform fees (which are, reportedly, in the region of 0.95%). It is aimed at customers who lack the confidence to invest and/or do not wish to pay higher charges for personal advice.
Other banks are reportedly preparing to launch similar robo-advice tools in an effort to promote investment products and increase revenue.
The FCA has reported that one in five adults cannot read a bank statement and one in three cannot calculate the interest rate on their savings. It is encouraging the use of automated advice to make financial services more accessible, and it is hoped that services such as robo-advice will help address concerns that people in the UK are not saving enough money.
The Conveyancing Association (representing solicitors who carry out a significant proportion of the mortgage transactions in England & Wales) has joined the call for tighter regulation on letting agents.
The association has identified specific areas for improvement, including the level of agents' fees, duplication of charges between landlords and tenants, a lack of clarity around the services carried out and significant delays in the provision of services. It has proposed the wholesale regulation of professional letting agents and management companies to address this.
The association's suggestions could be good news for lenders, by improving stability within the rental market and encouraging an increase in buy-to-let investment.
The Leasehold Reform (Amendment) Bill is also likely to shortly become law. The Bill proposes that long leaseholders have the ability to nominate an agent (e.g. a solicitor) to sign documents on their behalf. At present, such documents have to be signed in person, which is inconvenient for those with limited availability e.g. ex-pats and those who spend significant periods of time outside of the jurisdiction. Again, the proposed changes are likely to make buy-to-let investment in England and Wales more appealing.
Mortgage market round-up
Key points for lenders arising from November's Budget and other recent noteworthy trends in the mortgage market include:
- First time buyer sales have fallen to a four-year low. However, commentators have suggested the Chancellors' stamp duty reductions may cause this to increase over the coming months.
- The cost of buy-to-let (BTL) mortgages (both trackers and fixed rate products) has increased following the recent interest rate increase. However, despite falling yields, rates do not appear to have increased sufficiently to lure significant numbers of investors away from the BTL market and towards alternative investments.
- The government has pledged £25m (the 'Planning Delivery Fund') to help local authorities deliver new homes. The fund is aimed at encouraging more innovation in the design quality of new housing developments, as well as providing design advice and support to local authorities.
- The number of people wanting to build their own home increased by 80% in the last year. Some 33,000 people have signed up to Right to Build registers to secure plots of land, compared with 18,000 last year. This reflects the continued shortage of housing stock and an increased need for self-build mortgage products.
Historically, possession claims have been exempt from public hearings but the Civil Rules Committee is considering a public consultation on whether such protection is required.
A customer's mortgage balance, level of arrears and details of the customer's income and affordability may all be discussed at a hearing. Making this public would seem to be at odds with increased regulation around data protection, especially as some of the information could be used to impersonate the customer.
Not only would a public forum be more intimidating for customers, it may also thwart payment proposals as customers may not be as open with their finances as they would otherwise have been.
More rule changes may also be afoot. The Supreme Court is considering whether the court rules are too difficult for unrepresented individuals to navigate. Whilst litigants in person have always been directed to adhere to the court rules some latitude has been given e.g. additional time to file a defence instead of granting claimants default judgment. The Supreme Court will now decide whether they should be given special dispensation. It is not yet known whether this will make it easier or more difficult for banks to deal with litigants in person.
We will report further on these stories as more information becomes available.
Peer to peer
The FCA’s post implementation review of crowdfunding and P2P lending has been delayed until later this year. Peer2Peer Finance News cite Brexit and other regulatory matters as the reason.
There is no official word from the FCA but watch this space for further developments.
As readers may recall, the innovative finance ISA (IFISA) allows UK investors to make P2P/crowdfunding investments in a more tax efficient manner.
Before firms can offer IFISAs, they require full authorisation from the FCA and approval from HMRC. Now that most of the major P2P firms have obtained full FCA authorisation, the IFISA is starting to become more widely available in the market.
In November, Funding Circle’s IFISA was launched to existing customers, while Assetz Capital launched its IFISA in December 2017 and Ratesetter is expected to follow suit next month.
ThinCats is also expected to launch its IFISA in 2018. It will be interesting to see how much interest this generates.
Following feedback from its lenders, Landbay has announced that it will soon offer mortgage terms of up to 25 years (until now, terms were limited to 10 years). Landbay has lent over £70 million on mortgages to date and focuses on the buy to let market.
Landbay said it expects to see an increase in the number of borrowers. However, it anticipates that most of their borrowers will continue to refinance after the initial period and therefore does not expect its average mortgage duration of three to five years to be affected.
This is significant as it brings Landbay in line with the more mainstream lenders in this space, who are typically offering mortgages with longer terms.
Focus on Scotland
In April 2017, with the aim of promoting the early settlement of cases, legislation introducing 'pursuers’ offers' came into force.
Under the procedure, the pursuer offers the defender a sum to settle the action, together with expenses. If the defender does not accept the offer, the matter is likely to proceed to proof (i.e. an evidential hearing). If, at the hearing, the court awards the pursuer an amount more than or equal to the sum sought in the offer then the defender must pay interest on the sum from the date of the offer and pay up to 50% extra in expenses. Pursuers’ offers therefore create an incentive for a defender to settle at an earlier stage.
Such offers can be made in 'ordinary cause' actions (i.e. monetary actions for £5,000 or more) and actions brought in the Court of Session.
It is still too early to determine whether pursuers' offers have promoted and encouraged earlier settlements. Preparing for proof can be costly and time consuming, so many parties are likely to welcome early settlement. This concept should, therefore, be at the forefront of pursuers' minds when pre-proof negotiations are failing.
Reminder about private residential tenancies in Scotland
Following the introduction of the Private Housing (Tenancies) (Scotland) Act 2016, from 1 December 2017 any new tenancy in Scotland will be a private residential tenancy (PRT). The PRT replaces the assured tenancy. The main features of the PRT are:
- The tenancy does not have a minimum term.
- Pre-tenancy notices do not need to be served prior to the tenancy beginning.
- Landlords will only be able to repossess the property using one of the statutory grounds for repossession.
- The tenant can terminate the tenancy on providing 28 days' written notice to the landlord.
- The landlord must give the tenant either 28 or 84 days' written notice to terminate the tenancy; the notice period depends on the length of occupancy and/or the grounds for termination.
- Rent can only be increased once in every 12 month period and only after providing three months' notice.
If a lender decides to take possession of a tenanted property it must firstly obtain a possession order against its borrower and then take steps to remove the tenant. The absence of LPA receivers in Scotland requires the lender to deal directly with a tenant. The PRT does not alter this.
It remains to be seen whether moving from a fixed term tenancy regime to having no fixed term impacts the lender's ability to secure vacant possession. It has been suggested that the PRT offers greater security to a tenant, which may make it more difficult to obtain vacant possession.