One cannot legislate problems out of existence. It has been tried.

So said Norman Augustine, the famous aerospace executive. 

Nevertheless, since the underlying concept of a regulated mortgage contract was introduced by UK regulators in 2004, the regulatory framework for residential mortgages has been the subject of continuing intervention in the policy space, and we expect to see these upcoming changes in 2020: 

Leasehold reform

There have been increasing calls for leasehold and commonhold reform in the residential market since the 2014 study by the Competition and Markets Authority (CMA) on residential property management.

On leasehold reform, we have seen two recent consultation papers by the Law Commission, both of which are now closed for submissions. The first of these, entitled "Leasehold home ownership: buying your freehold or extending your lease", was published in September 2018 and proposed a unified procedure for leaseholders claiming enfranchisement rights. Such a simplified procedure, if implemented, would streamline the procedure for leaseholders acquiring the freehold of their house or extending a lease.

The second of these consultation papers, entitled, "leasehold home ownership: exercising the right to manage (RTM)" closed on 30 April 2019 and established provisional proposals which included: (i) the relaxation of the qualifying criteria allowing additional properties to qualify for the RTM; (ii) allowing for multi-building RTM to occur on estates; and (iii) establishing a clearer set of rules for the transfer of information regarding management functions. The Law Commission intends to publish their final report on this in February 2020.

Commonhold reform

Through a consultation entitled, "Reinvigorating commonhold: the alternative to leasehold ownership", the Law Commission has drafted various proposals aimed at (i) enabling commonhold land to be used for mixed-use developments with residential properties and commercial units; (ii) improving mortgage lenders? confidence in commonhold (something which has historically been problematic); (iii) providing homeowners with more control over the service charges of the commonhold and requiring early decisions in relation to maintenance costs; and (iv) making the conversion of existing leasehold schemes to commonhold easier.

Mortgage advice rules

In May this year, the Financial Conduct Authority (FCA) published a research report on buying mortgages without advice. The report suggested possible improvements such as: (i) better sign-posting; (ii) simplified language in customer information documentation; and (iii) the use of a Q&A format. We expect the FCA to make further announcements in this space in 2020.

Customers on reversion rates in closed books

Following on from the interim results of the FCA's mortgage market study published in May 2017, which highlighted the existence of long-standing borrowers on reversion rates and unable to switch to better deals due to affordability criteria under the Mortgage Credit Directive, the House of Commons Treasury Committee published a letter on 4 June 2019 addressing this topic.. This advocates the establishment of a figurehead who would serve as the receiver for mortgage prisoner complaints and for lenders to take a fair approach and work with the borrowers to find a way to repay any outstanding mortgage amounts, only using repossession as a last resort. Statutory changes in this area are expected by the end of the year or early 2020.

Competition in the mortgage sector

On 26 March 2019, the FCA published its final report on competition in the mortgage sector, which highlighted some areas where the FCA felt the sector could be improved, in particular suggesting that the market should be required to implement procedures which would make it easier for consumers to switch between mortgage plans. Steps in this direction are likely in 2020.

Mortgage reporting requirements

Further to the proposals of the FCA and PRA in December 2018 regarding changes to mortgage reporting requirements, a policy statement was published in 2019 on the mortgage reporting requirements for regulated mortgage lenders and home finance administrators. Alongside this statement, the PRA published updated instruments which are to come into effect from 1 October 2020. These include:

• a mortgage lender and administration return (MLAR) form
• guidance notes giving firms advice on how to satisfactorily complete the MLAR
• a supervisory statement surrounding guidelines relevant to the completion of regulatory reports (SS34/15).

The FCA and the PRA intend to put in place a GABRIEL test environment which will be accessible to firms from November 2019.

I will be speaking further on some of the issues touched on in this post at the UK Finance Annual Mortgage Conference on 6 November 2019.