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:
- Default County Court Judgment consultation is launched
- Update: digital mortgages
- Effectiveness of Empty Dwellings Management Orders questioned
- Houses in Multiple Occupation – Government response
- HMRC announces ban of credit card tax payments
- Market round-up
- Efiling in the regions
- Unfair practices in the leasehold market
- Crypocurrency rules
The County Court produced 1.1 million judgments in 2016/17, 85% of which were undefended and resulted in default judgments. This can happen even when creditor claimants use an incorrect address for a debtor defendant.
The Ministry of Justice (MoJ) is therefore concerned that the debtor's credit rating could be affected without their knowledge.
The MoJ wants to ensure that more protection is available to individual consumers. To do this the MoJ is proposing to:
- Allow consumers to challenge a default judgment if the debtor was unaware of it/the claim/has only just become aware of the judgment/claim, or settles the debt
- Educate consumers about their rights and responsibilities eg updating creditors when contact details change.
- Create a centralised information source on the effect of judgments and how to challenge a default judgment.
- Look for examples of creditors deliberately flouting the court rules and serving the claim at an old address.
A consultation has been launched on the topic and runs until 21 February 2018.
There have been two developments in the Land Registry's digital mortgage project this month.
Firstly, Business Minister, Greg Clark, identified a new liability risk which arises because HMLR will certify the identity of a borrower when that person provides a digital signature in advance of registration. Such liability sits outside of the scope of HMLR's current existing statutory compensation scheme.
Given that the risk of fraud is low (GOV.UK Verify has not yet identified any fraud in over 1.25 million accounts created using this service), the proposal is expected to be a largely administrative process.
Secondly, changes to the Land Registration Rules, enabling the Land Registry to register electronic mortgages, are due to come into force on 6 April 2018.
Meanwhile, Trussle has launched a new free online mortgage monitoring service. The service promises to optimise mortgages "forever" by monitoring factors such as interest rates and early redemption penalties. Once a better deal is identified the customer is guided through an online mortgage application process.
Trussle is working as a broker for over 90 lenders and was designed to prevent customers from unintentionally slipping into a lender's standard variable rate with their current mortgage deal comes to an end.
The Housing Act 2004 created Empty Dwelling Management Orders (EDMOs) so that Local Authorities could manage dwellings which had been empty for more than six months back into occupation.
The Liberal Democrats recently undertook research to gauge the effectiveness of such orders. Approximately 216,000 properties have been empty for more than six months, 60,000 of which have been empty for more than two years and 11,000 for ten years or more.
The Liberal Democrats are calling on the Government to review the situation.
From a lender's perspective, the Local Authority would usually seek to engage with the lender before making an order. The circumstances which give rise to an EDMO are also likely to be a breach of the mortgage terms eg a requirement to occupy or maintain the property. Lenders who are contacted by councils in relation to empty dwellings should take advice. TLT can assist, if required.
The Government is proposing to extend the mandatory licensing of Houses in Multiple Occupation (HMO) and has issued its response to the consultation. At present, only HMOs with three or more storeys with five or more occupants need a mandatory HMO licence.
The new rules propose mandatory licenses for HMOs occupied by five or more people from two or more households, regardless of the number of storeys.
The Government also intends to introduce mandatory licensing for converted flats where basic amenities are shared; and purpose built flats where there are two flats in the block and one or both are used as an HMO.
Where a Local Authority has granted a licence for an HMO under their additional licensing powers, this will be passported into the new mandatory scheme. Owners applying for a licence for the first time are likely to be given six months to apply.
HMOs are a specialist subset of BTL lending. When the new legislation becomes effective (expected this year), lenders will need to ensure that relevant customers apply for licences. Lenders will also need to ensure that their mortgage terms are wide enough to ensure that customers are obliged to comply with new rules.
We will provide further updates once the final legislation is published.
HMRC is no longer accepting tax payments by credit card.
The ban is a result of new rules preventing HMRC from passing on credit card charges when processing tax payments. As a publicly funded body, HMRC said it would be impossible to absorb the credit card charges without ultimately passing them back to customers through the public purse.
However, debit cards and corporate credit cards will continue to be accepted.
With a total of £741 million worth of tax payments being made on personal credit cards in 2016-17, the ban is likely to have a significant impact on taxpayers.
Many have said that HMRC's timing has also caused difficulties, with written warnings given less than three weeks before the deadline for settling 2016-17 accounts at the end of last month.
Self-employed taxpayers are likely to be the most affected as they use credit cards to spread the total cost of the bills.
Taxpayers reliant on credit cards can use alternative methods of paying their bills – such as taking out a personal loan or using money transfer credit cards. They may also be able to negotiate time to settle their bills.
- The gap between comparative growth in the owner occupier and BTL mortgage markets has increased. The number of home owner mortgages increased by 16.8% in 2017 compared with 2016, whereas BTL transactions were down by 1.5% over the same period. UK Finance has speculated that whilst low interest rates, slowing price growth and affordable finance all benefit owner occupiers, recent changes to the tax regime have made the BTL sector less appealing.
- The Association of Short Term Lenders, which represents the interests of some 35 bridging loan providers, is confident in the long-term prospects of the UK economy with 50% of members expressing positivity, up from 43% in June. Whilst the Association remains cautious regarding Brexit, members consider that measures announced in the last budget will have a positive impact on the housing market. 50% of members anticipate growth in the sector and increased competition going forward.
- The equity release market surged by 40% in 2017 as over £3 billion was released from UK property, up from £2.2 billion in 2016. The increase is a result of growth in property wealth, driven by increasing house prices. A growing number of lenders have entered the equity release market, which has increased competition and innovation whilst driving rates down.
- The expansion of Sajid Javid’s brief to include housing represents a change in the way the government will deal with housing policy. Going forward, housing and the property market will be represented at cabinet level and a senior minister will be responsible for implementing the Chancellor's commitment to house building, set out in the last budget.
When engaged in litigation, various documents need to be filed at court. Traditionally, this was a paper exercise. Since last April, efiling (filing documents using the court's online system), has been compulsory in the Rolls Building courts in London. A roll out to the regions was expected.
Sir Geoffrey Vos, Chancellor of the High Court, announced in a speech last month that efiling is to be rolled out to the regions in the Spring.
Whilst there may be a few teething problems, many firms, including TLT, have been using the efiling system since it was rolled out and already have internal processes in place which can be transferred to the regions. Overall, this change should speed up the filing process.
Between July and September last year, the Government ran a consultation on unfair leasehold practices. There was an overwhelming response of more than 6,000 replies, which indicates the appetite for change in this area.
As a result of this consultation:
- The Government committed to outlaw the sale of houses on a leasehold basis (with limited exceptions).
- Under new legislation new leaseholds will have a nominal peppercorn rent.
- The Government will take action to ensure that leaseholders are not subject to unfair possession proceedings (particularly in relation to outstanding ground rent under an assured tenancy).
For more information click here.
From a lender's perspective, the new proposals will ensure that the value of a lender's security is not comprised by onerous lease provisions. If, in the meantime, a customer is purchasing a freehold under a developer's redress scheme, the lender will need to ensure that the customer charges any additional interest or title to them. Lenders may also need to consent to variation of existing leases. TLT's Inter-Mortgage team can assist, if required.
The rise in popularity of digital currencies over the last year has caught the eye of the Governor of the Bank of England and the head of G20’s Financial Stability Board (FSB), Mark Carney.
Mr Carney has indicated that rules around Initial Coin Offerings (ICOs) need to be tightened. He told the Treasury Select Committee (TSC) that he expects the FSB to discuss distributed ledger technology and digital currencies.
ICOs are a virtual way to raise funds. A company sells its underlying tokens in exchange for a cryptocurrency. Tokens can then be sold or used to buy services from the issuer in the future.
The TSC asked Mr Carney about Bitcoin, which has seen fluctuations in value from $1,000 per unit to over $17,000 (and is currently trading at $6,000), but he does not consider it a risk to the UK's financial stability. Whilst the UK has allowed ICO (albeit with risk warnings given to investors), other countries, such as China, have banned them altogether.
The FCA is expected to investigate ICOs with a view to considering more regulatory action.