HSBC Panel Solicitors: A Welcome U-Turn

Many will be aware of the controversial decision in early 2012 by HSBC to keep a limited panel of 43 solicitors / licensed conveyancer firms. If a customer decided that it wanted to use its own firm of solicitors who were not on the panel, it was faced with the prospect of paying two sets of solicitors’ bills: one for its own solicitors and a second for the bank’s solicitors.

Thankfully, I never had the misfortune of acting in these circumstances, or of having to twist a client’s arm to turn its back on HSBC and find another mortgage lender. However, colleagues at other firms were not so lucky and I heard many horror stories of waiting for weeks on end for the bank’s solicitors to confirm matters could proceed. The ridiculous element of the whole panel decision was that it was meant to drive efficiency and quality, when the firms selected on the panel were usually middle-of-the-road firms happy to do a lot of work for precious little fees in return.

The good news is that HSBC have decided to cancel the arrangement and now any firm which meets the Law Society’s Conveyancing Quality Scheme (which Tozers - I am pleased to say – do) can act for HSBC in residential lending transactions. On the change of heart, Martijn  van  der Heijden, Head of Lending at HSBC commented:

“We introduced our panel in January to provide additional protection for both our customers and the bank. We listened to feedback from customers and solicitors, and through working with the Law Society can now agree to more solicitors acting for us while also managing our risks and maintaining the unique benefits of using one of our panel solicitors.

“We are committed to helping our home-buying customers and have set aside £15 billion to lend in residential mortgages this year.”

Law Society Chief Executive Desmond Hudson said:

“With this move HSBC is demonstrating  its  commitment to putting customers first as well as its confidence in the CQS scheme. The bank has been constructive in working with  the  Law  Society, in designing this solution. As well as giving its customers a much wider choice of solicitor that can also act for HSBC, it has aligned itself further with the CQS and the high standards the scheme represents.

The Law Society and its members have campaigned for this change in the interests of solicitors’ home-buying clients since HSBC introduced its original  panel. HSBC’s willingness to engage with us has helped secure a good  outcome for their mortgage customers, our CQS members and the house buying public.”

 

 Full marks to the Law Society for pressing this issue.

Mortgage Prisoners

Never one to shy from a gloomy prognosis, the Daily Mail has seized on a report from the Financial Services Authority’s (“the FSA”) consumer panel into potential mortgage rule changes next year, which warned how nearly half of all borrowers who took out a mortgage between 2005 and 2011 could become “mortgage prisoners”.[1]

The term is used to describe someone tied in to an existing deal who faces being refused by all lenders, including their own, when the existing deal expires and they require a remortgage. It is felt that this would be the result of new proposals placing the emphasis on lenders to be satisfied that borrowers can repay loans from income cash flow, without a reliance on future property price appreciation. Many “mortgage prisoners” are said to be either buy-to-let investors with a small deposit and/or owners currently on an interest-only deal. The proposals from the FSA would also impose stricter conditions on self-certified loans, thus reducing the availability of these facilities to the self-employed.

For its part, the FSA welcomed the results of the consultation while stating that any new rules would not be introduced into law until the housing market is on a more secure footing. This exemplifies all too well the difficulties in trying to encourage future prudence in the property market, while protecting the interests of categories of current homeowners.

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[1] http://www.dailymail.co.uk/news/article-2124803/Fears-millions-mortgage-prisoners-trapped-loans-taken-boom-years.html

Irreverent News:

Broadmoor hotel?

West London Mental Health NHS Trust hopes to interest a developer in taking on its old Victorian buildings at Broadmoor high-security psychiatric hospital, to create a hotel and housing, reported the BBC earlier this month.[1]

Home to some infamous patients, including the Yorkshire Ripper, the homes and hotel would be separated from a new psychiatric unit, which last month received planning go-ahead from Bracknell Forest Council, by trees and a high security perimeter fence. The Trust hopes that a development of the old Victorian buildings would help fund the new psychiatric unit.

According to the article, the Trust is “confident” that interested developers will come forward while recognising that “if you were strolling in the grounds on a light summer evening and you heard some sort of noise in the grounds, you might be scared.” Not one for the squeamish.

Interesting Rental Proposition

Moving further afield, the Daily Telegraph last month highlighted an exciting new letting opportunity: a property in a town 20 miles north of Islamabad lived in by Osama Bin Laden and his family in 2004, yours for the bargain price of £150 a month.[2]

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[1] http://www.bbc.co.uk/news/uk-england-berkshire-17610985

[2] http://www.telegraph.co.uk/property/propertypicturegalleries/9134101/Osama-bin-Ladens-Pakistan-hideaway-goes-on-the-market.html

Localism Act 2011

The Localism Act 2011 (“the LA 2011”) received royal assent on 15 November 2011 and contains some interesting changes to the rules on tenancy deposits, with these changes having come into law on 6 April 2012. Letting agents and landlords alike must ensure they are up to speed with the new provisions, as failure to adhere to them could have a significant impact on their ability to bring tenancies to an end, and will also expose the landlord to a mandatory financial penalty, who will no doubt seek reimbursement from the agent. Please note this is not intended to be, nor can it be, a full appraisal of the changes introduced by the LA 2011, but is instead a short overview on some of the salient points.

14 days to 30 days

Section 184 of the LA 2011 is the area of interest for practitioners and professionals in the letting sector. At first glance, the headline change is that from the date a deposit is received in connection with a shorthold tenancy, landlords will have 30 days in which to protect the deposit in an authorised scheme and provide the prescribed information to the tenant, as well as any ‘relevant person’ (for example, mum or dad who actually paid the deposit). Prior to the LA 2011, the period here was 14 days.

Under previous case law[1], where landlords had failed to protect the deposit and/or provide the prescribed information within this 14 day period, they could avoid paying the prescribed fine of three times the deposit sum, provided they had protected the deposit and supplied the prescribed information before the court hearing date. In effect, this made a mockery of the Housing Act 2004 which introduced the tenancy deposit scheme.

Unsurprisingly, the amendments introduced by the LA 2011 mean that late compliance will no longer be a defence to a claim by the tenant or relevant person that the landlord failed to comply with the requirements of the tenancy deposit scheme. If the landlord fails to protect the deposit and/or provide the prescribed information within the 30 day period, the court must order the landlord to pay the claimant a sum of between one and three times the amount of the deposit.

It is particularly important to note that even a tenant whose tenancy has expired can make a claim against the landlord for this penalty sum. Under previous case law[2], it had been held that the power of the court to make such a penalty award would not apply once the tenancy came to an end. Therefore even if the tenancy has ended and the deposit has been repaid, should the landlord have omitted to provide some of the prescribed information, he could in theory be asked to pay one to three times the deposit sum to the tenant. One would think parliament would act quickly to change such an anomaly if a case ever came to court and was decided in this way, but until this is done it is best to assume the worst.

Existing tenancies

It should be noted that these changes will apply not just to new shortold tenancies created on or after 6 April 2012 but also to matters where a tenancy deposit was taken before 6 April 2012 and the tenancy is still in force on 6 April 2012. In the latter scenario, the landlord has until the period of 30 days after 6 April 2012 to protect the deposit and provide the full prescribed information before an offence is committed; 30 days grace from the inception of the LA 2011, in other words. Therefore if, say, a deposit was taken in January 2012 with a six-month assured shorthold tenancy running from 1 January 2012 and the landlord fails to protect the deposit and/or provide the prescribed information by 6 May 2012, they will face a penalty of up to three times the deposit sum if a claim is made. Further, no section 21 notice could be served until either 1. the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or 2. the landlord and tenant have been through the court process to determine the penalty payable by the landlord.

Letting agents would be well advised to check that they have properly protected the deposit and handed out the correct prescribed information to all relevant persons for subsisting tenancies where a deposit was taken prior to 6 April 2012. Failure to rectify this within the 30 day period from 6 April 2012 could result in financial claims by tenants and delays in recovering possession, with the landlord on each occasion no doubt looking to the letting agent for full compensation.

Further reading: http://www.communities.gov.uk/housing/privaterentedhousing/tenancydepositprotection/tenancydepositprotectionfaq/

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[1] Honeysuckle Properties v Fletcher and others [2010] EWCA Civ 1224

[2] Gladehurst Properties Ltd v Farid Hashemi [2011] EWCA Civ 604

New 7% Stamp Duty Land Tax Rate

The Government’s latest budget, unveiled on 21 March 2012, introduces a new stamp duty charge of 7% for residential properties purchased for more than £2m. For companies acquiring residential property, the charge will be 15%. The new charge applies from midnight on 21 March 2012.

Prior to this change, purchases of over £1 million by individuals attracted stamp duty land tax at a rate of 1%, with no further percentage increase. Accordingly, the difference of £1 would cost a buyer £40,000 when one compares the stamp duty land tax payable in respect of a property purchased for £2 million with that payable in respect of a property purchase for £2,000,001. In support of this move, the Chancellor, George Osborne, stated “it is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more.”

It will be interesting to see how much revenue is generated by the tax increase, with the Treasury expecting it to raise £150m in the next financial year, rising to £300m by 2016-17. Much will depend, one expects, on how well the Government clamps down on the use of private limited companies in property transactions, which have historically been used to circumvent duty payments. Certainly, the new levy on companies of 15% introduced by the budget will cause buyers to consider their options.

Fall in UK House Prices but South West fares better than most

Land Registry data^[1]reveals that UK house prices fell on average by 1.3% in 2011 with only London (where else) bucking the trend with a 2.8% increase. The south and the south east both suffered a small 0.2% decrease, with the south west appearing next in the list with a 1.5% decrease. The worst affected was the north east with an eye-watering 7.1% decrease in house prices from 2010 to 2011, and an average house price of just under £100,000 (compare that with the London average of £345,298).

Commenting on the data, “This is Money” website included a telling insight into life in the capital with the following quote from a London estate agent, “when the sale of a property in Fulham fell through during the festive period, it received 20 viewings and seven  separate offers in the following ten days – before selling for £20,000 above its agreed asking price.”^[2]

While this news will be the envy of agents across the land, it is clear from the Land Registry data that the south west is more resilient than many other regions. Certainly, media exposure is on the south west’s side, with episode 1 – The Hound of the Baskervilles – of the last Sherlock Holmes’ series filmed on Dartmoor, and We Bought A Zoo, a soon-to-be-released film featuring Scarlett Johansson and Matt Damon, based on the true-life story of Dartmoor Zoo (albeit shamelessly relocated to California for the film). Local practitioners will be hoping to benefit from this small sprinkling of Hollywood glamour.

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[1] http://www.landreg.gov.uk/about-us/press-listing/2012/market-trend-data-december-2011

[2] http://www.thisismoney.co.uk/money/mortgageshome/article-2093876/Land-Registry-House-prices-fell-1-3-2011-London-home-costs-3-5-times-North-East-property.html

Housing Strategy Latest

Hopefully the 95% newbuild scheme has a better long-term economic benefit than the infamous Northern Rock 110% specials

In a previous post, I examined the proposals outlined by the Department for Communities and Local Government to boost the country’s ailing new-build property market. In February 2012, the minister for Housing and Local Government, The Rt Hon Grant Shapps MP, released a statement by way of update on the implementation of these proposals.[1]

95% Loans

It will be recalled that the Government’s main stimulus was the creation of a new-build deposit scheme, whereby lenders are encouraged to lend up to 95% of the value of the property, with access to an indemnity fund in the event of borrower default.

The scheme, now unveiled as the ‘NewBuild Guarantee’, will apply to all new-build houses and flats provided the value of the property in question does not exceed £500,000. It is worth noting that the scheme is not available to purchasers under a shared ownership or shared equity scheme, or to buy-to-let or second home investors.

Right to Buy

The results of the consultation announced in the original housing strategy includes proposals to uplift the cap on tenant discounts to £50,000. This change will more than triple the existing cap in London and be a substantial increase on the present south west cap of £30,000. Of course the key issue with right-to-buy policy is the replenishment of housing stock once a property has left the public allocation, and  plans are proposed for an affordable rent home to be built for every right-to-buy property sold. While sounding simple on paper, clearly delivery is an issue in terms of identifying land and procuring development.

Regeneration of surplus public land

In order to free up more public land for housing opportunities, discussions are underway with agencies such as the Ministry of Justice and Home Office, as well as the BBC, Network Rail and Royal Mail.

Local Enterprise Partnerships

According to the Communities and Government website, Local Enterprise Partnerships (“LEPs”) are “locally-owned partnerships between local authorities and businesses and play a central role in determining local economic priorities and undertaking activities to drive economic growth and the creation of local jobs. They are also a key vehicle in delivering Government objectives for economic growth and decentralisation, whilst also providing a means for local authorities to work together with business in order to quicken the economic recovery.”[2]

The partnership for the Devon area is known as “The Heart of the South West Local Enterprise Partnership” and is chaired by Tim Jones (also Chairman of the Devon Economic Partnership) with the various local councils and regional universities represented on the board. Funding from Government is to be paid to each LEP by the end of February 2012, which will then be allocated by the LEPs as they see fit. Without being project specific, the south west LEP has identified its priorities and these can be found at their website http://www.heartofswlep.co.uk/about. It will be interesting to see what projects emerge in the coming year.

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[1] http://www.communities.gov.uk/statements/corporate/2080013

[2] http://www.communities.gov.uk/localgovernment/local/localenterprisepartnerships/

Property Update – January 2012

End of Stamp Duty Exemption

In the March 2010 budget, the Government announced a two-year relief from stamp duty for first time buyers of residential property, where the price of the property did not exceed £250,000. Where the buyer comprises more than one person, neither party must have previously owned property anywhere in the world in order to qualify for the exemption. With the acceleration in house prices that epitomised the boom years of the last Labour Government, it might be argued that such a relief, temporary or otherwise, was long overdue to provide first-time buyers with some breathing space.

Despite there having been little positive change (if at all) in the economic climate since March 2010, the Government announced in Autumn of last year that this relief would indeed be a short-term measure scheduled to end on 24 March 2012. Accordingly, any transactions completed on or after 25 March 2012 will attract stamp duty of 1% where the consideration is between £125,001 and £250,000, regardless of the ownership history of the buyer.

With up to £2,5000 at stake, practitioners should expect a clamour from purchasing clients to hurry matters through before the 25 March 2012 deadline, a scenario that was all too apparent as soon as the Autumn announcement was made. Indeed, Paul Smee, the director general of the Council of Mortgage Lenders envisaged at the time, ”a bunching of eligible first-time buyer transactions early next March to beat the expiry date on the concession” stating that, “while the [stamp duty] concession may not have stimulated additional demand, it was a significant help to home-owners entering the market and its removal runs counter to the themes of the new housing strategy.”[1]

As a matter of good practice, agents and solicitors should flag the upcoming change to buyers at the outset of each matter, to avoid any finger-pointing in the event of a protracted completion. For keen sellers and their agents, one would expect to see an increase in agreed sales for properties within the 1% bracket as demand increases.

It is probably fair to say that the first-time buyer relief was the most visible change introduced by the Government to improve that particular section of the housing market. While the November 2011 Housing Strategy admirably seeks to improve the lot of those buying new-build properties (often first-time buyers) with 5% deposits and alike, one wonders if the public are sufficiently aware of the detail for it to make the desired difference.

Mortgage Panels and the Law Society Quality Hallmark

On January 2012, HSBC launched a new 43-member conveyancing panel of solicitors and licensed conveyancers to provide legal services to its residential mortgage customers.

Mortgage lenders have long used a panel system whereby firms/practitioners with whom the lender does business frequently are given a panel number and are accepted to act on behalf of that lender in residential purchase/mortgage/remortgage situations. Accordingly, the use of the term ‘panel’ is nothing new. However HSBC have tightened its panel selection criteria, requiring all panel firms to hold the Law Society’s flagship Conveyancing Quality Scheme (QCS) accreditation.

The recently introduced QCS is stated by the Law Society to:

“provide a recognised quality standard for residential conveyancing practices. Achievement of membership will establish a level of credibility for member firms with stakeholders (regulators, lenders, insurers and consumers) based upon:

-       the integrity of the Senior Responsible Officer and other key conveyancing staff.

-       the firm’s adherence to good practice management standards.

-       adherence to prudent and efficient conveyancing procedures through the scheme protocol

This scheme will create a trusted community which will deter fraud – year on year we will drive up standards.”[2]

It is expected that many lenders will now follow HSBC’s lead (although it is worth pointing out that Santander last year imposed a requirement that new panel applicants only be QCS accredited). While this will not present a problem for firms such as Tozers which have successfully been awarded QCS, those practitioners that have not achieved this quality mark will encounter significant difficulties, as clients baulk at the idea of paying two sets of solicitors’ fees and proceed instead with one of the bank’s panel solicitors.

A slightly worrying aspect of HSBC’s announcement is the small number of solicitors presently on the panel (43). While HSBC have confirmed that those practitioners not presently on the panel are welcome to apply for panel membership, one wonders what further conditions may need to be met for firms to be placed on the panel. Indeed, Law Society Chief Executive Desmond Hudson raised the possibility of the bank being tempted to sell valuable places on the panel, thus putting up costs for house buyers, stating. “this is not in the long-term interests of consumers. HSBC should reconsider.”[3]

Watch this space.

Useful Links

HM Revenue & Customs Reliefs and Exemptions: http://www.hmrc.gov.uk/sdlt/calculate/reliefs-exemptions.htm

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[1] http://www.bbc.co.uk/news/business-15944999

[2] http://www.lawsociety.org.uk/productsandservices/accreditation/conveyancingqualityscheme.page

[3] http://www.lawgazette.co.uk/news/quality-hallmark-hsbc-s-conveyancing-mini-panel