FCA looking to bring back Retirement interest only mortgages

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The Financial Conduct Authority (FCA) is looking to allow the reinstatement of Retirement interest only mortgages on main residences by excluding them from the definition of a lifetime mortgage.

In a consultation paper the FCA plans to class Retirement interest only mortgages  as a separate interest only mortgage for older consumers where, assuming there is no default, the loan is only repaid on a specified life event such as the customer’s death or move into residential care and the sale of the property.

The FCA thinks that these interest only loans into retirement could help older people whose mortgages are reaching the end of term with no, or a short fall in, repayment vehicle. Also older borrowers looking to release equity without wanting the final cost of rolled up interest when the property is sold or inherited.

The consultation paper said: “Retirement interest-only mortgages have significantly different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning that consumers are not at risk of rapid equity erosion and the subsequent reduction of funds available for a bequest.

“Consumers are also more likely to be familiar with the product features of a mortgage involving interest payments. However, we do consider that there are some risks associated with lending with no fixed term and we are proposing to add a small number of additional requirements for the sale of these loans.”

Alice Watson, Head of Marketing at Retirement Advantage Equity Release, told the Financial Reporter: “It is great that these proposals could lead to a wider range of options available to older borrowers, but retirement interest only mortgages are not the only option. Retirees should ensure they are considering the full range of solutions available to them.

“Lifetime mortgages are a viable and a flexible option, and provide a number of safeguards that the proposed retirement interest only mortgages may not offer. Lifetime mortgage customers can choose an interest only option, where they repay just the interest on their equity release mortgage. One difference between this and the proposed retirement interest only mortgage is that, if customers miss their monthly interest payments, they can switch to interest roll up without threat of repossession, so long as they abide by the terms and conditions, which offers customers real peace of mind.

“The proposed retirement interest only mortgage may also be offered without the client needing to take financial advice. We believe this carries its own risks and could potentially leave the customer worse off. With lifetime mortgages, customers have the safeguards of financial advice, which means that a holistic overview to their retirement planning has been taken and the most appropriate solution has been recommended. Without seeking professional financial advice, there is a risk that customers may not be aware of which products are best for their particular circumstances.”

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Should Authorities Take More Responsibility When Paying Housing Benefits?

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All Good Landlords detest the phrase “rougue landlords” but we have to accept they exist, just as rogue Police Officers and rogue vicars do. The difference is that the Police and the Church take responsibility for their rogues, as do many other organisations.

What prompted me to write this post is that a “rogue landlord” was quite rightly prosecuted this week. He had converted a former hotel in Harlesden, into 26 studio flats without seeking council permission back in 2011. He was issued with an enforcement notice in March 2012, but failed to comply. The flats each measured between 9 meters squared and 20 metres squared, despite the minimum size for a studio flat in the capital being set at 37 metres squared and the building was reported as having poor insulation, thin walls, bad maintenance and insanitary conditions. The landlord has been issued with a £300,650 confiscation order and also ordered to pay £20,000 in fines and £18,268 to cover Brent Council’s court costs. He has been given three months to pay the confiscation order in full, which will be distributed between the government, the courts and the council.

What irks me is that Brent Council reports that the landlord housed over 100 vulnerable tenants, earning thousands of pounds by letting sub-standard accommodation. My natural inqusitiveness leads me to wonder:-

• Why was the payment of housing benefits authorised?
• Did the Council refer any of these vulnerable tenants?
• Should Councils be held accountable for making referrals and benefits payments in such circumstances? They may not know about the conditions of the property from day one but another question which I feel really ought to be asked is whether they continued to pay benefits after they learned about the conditions?
• Also, did the Council immediately re-house all of those vulnerable tenants as soon as they found out about the appalling conditions they were living in, and if not why not?

Perhaps somebody would like to file a Freedom of Information request to check and report back here?

The Council will benefit from the proceeds of the confiscation order, but will they take any responsibility for using the tax payers money to pay housing benefits to this landlord? This is a rhetorical question, OBVIOUSLY!

I look forward to reading your comments.

Please share this article on Social Media.

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Commons to debate letting fees ban

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Kevin Hollinrake, MP for Thirsk and Malton, and co-founder of Hunters Estate Agency has called for a debate on the lettings fees ban in the House of Commons this morning.

The Fees ban was announced in last Autumns Statement and is expected to come into force in the next year, but as yet without a firm date.

This has lead to much commentary indicating this will only result in costs incurred by agents having to be recovered by increasing monthly rental amounts so the tenant will not be any better off.

The proposed bill also includes capping security deposits at one month’s rent and holding deposits at one week’s rent. Again the cap on security deposit amounts may adversely affect tenants finding properties that will allow pets that are more likely to cause damage or tenants with less than perfect payment histories.

During the consultation period for the bill the Housing Minister, via MoneySavingExpert.com, received over 4,700 public responses to a request for views specifically on:

• Their experiences of letting agent fees
• Which fees they consider fair or unfair
• How they feel about the prospect of fees being transferred from tenants to landlords when a ban is introduced
• If tenants take varying tenant fees into account when looking for a rental property
• Would the public welcome the licensing of agents and landlords

The response to these views has been collated to be used in the debate which can be viewed on Parliament TV.

David Cox, chief executive of ARLA Propertymark, has said the fees ban will cause “unprecedented damage to the rental sector”and he reported that “independent analysis commissioned by ARLA Propertymark, following the UK government’s announcement of its own ban, revealed that if a full ban was introduced, rents will increase by £103 per year which will only serve to financially punish long term tenants.

“In our submission, ARLA is calling for fees associated with referencing to be left out of any ban. Right to Rent checks will soon be a service that agents in Wales will be required to undertake by law so it is only right that agents should be able to recover the associated costs, given the time and resources needed to carry out such checks.”

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Tenancy Agreements and how to get them right

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This is the 9th post in my 2017 Legal Update series.

All tenancies should have a tenancy agreement. It is legally possible to create a tenancy without one but you would be foolish to do so.

For example, I was contacted a while ago by a landlord who had allowed his tenant into the property without signing a tenancy agreement first.

“I got in touch with my tenant when he failed to pay the rent” he told me “only for the tenant to say that he was exercising his right to pay rent in arrears. Can he do that?”

My answer was, I am afraid “Yes, he can”. Under the common law, rent is payable in arrears. Tenants are only obliged to pay rent in advance if their tenancy agreement says so.

This is just one of the many ways in which landlords can protect their position by using a properly drafted tenancy agreement.

Unfair terms

One of the things covered by the consumer law I discussed in an earlier post (Consumer Law and why you should be worried about it) is the legislation prohibiting unfair terms in consumer agreements. These ‘unfair terms’ rules are now part of the Consumer Rights Act 2015 but have been with us for a long time.

They are the main reason why it is unwise for landlords to hack into their professionally drafted tenancy agreements and change them without legal advice.

For example, a clause will normally be unfair if it takes away a right a tenant would normally have in law. But how can you know whether you are doing this unless you have an encyclopaedic knowledge of what tenants’ rights are in the first place?

Then there are prohibitions. If you want to prohibit something a tenant would normally be able to do, such as re-decorate the property or keep a pet, your clause must contain wording providing for the tenant to request permission to do whatever-it-is and say that the permission will not be unreasonably refused.

Countless landlords have invalidated their pets clauses by removing this wording on the basis that “we will never allow pets in our properties”.

Maybe you won’t allow cats and dogs (and this will usually be reasonable) but what about a stick insect in a jar? Or (as per the leading case for this) a goldfish in a bowl?

The fact that tenants can request permission for something does not mean that you have GOT to grant it. Often it will be totally reasonable to refuse your permission (and you should do so). But if you deny tenants the chance to request permission – this will invalidate the clause, meaning that there is nothing to stop them keeping whatever pets they like.  Or doing whatever else the clause is prohibiting.

Protecting your position

Tenancy agreements need to be fair and ideally written in plain English, but this does not mean that they cannot include clauses to protect the landlord’s position. For example:

Data Protection – you should include clauses notifying tenants that you will provide their details to utilities if they default on payment and to your own tracing agents if they leave owing you money

Right to rent – make sure that everyone living in the property (not just the tenants) are named in the tenancy agreement and include a clause saying that no-one else is allowed to live there.

Contractual periodic tenancies – a recent case (Leeds City Council v Broadley) has held that although tenants are not liable for Council tax where a tenancy is a statutory periodic, a contractual periodic tenancy counts as part of the original tenancy and so satisfies the requirement that a tenant has a ‘material interest’ of 6 months or more’ in the property. Meaning that the tenants will be held liable by the Council. Not you. (NB All Landlord Law tenancy agreements provide for contractual periodic tenancies for this reason).

Further information:

You will find a lot of guidance in the ‘Tenancy Agreements 33 Days of tips’ series on my Landlord Law Blog.

Turning to our Conference Course, I do a talk on Tenancy Agreement Clauses, plus the Consumer Law talk has a lot of useful information about unfair terms (which come under the consumer legislation).

You will find more information about the Conference Course here.  There is a discount voucher for Property118 readers which is pp118cc30 – apply this on the checkout page and it will reduce the payment by 30%.  Note however that the coupon will expire after 16th September.

If you are looking for a tenancy agreement for your property, Landlord Law has a huge selection of templates plus you can always ask me (if you are a member) to help you draft any special clauses you may need or ask me any questions you may have about the correct tenancy agreement to use for your situation.

Our special tenancy agreements include HMO type agreements for a room in a shared house and agreements where the landlord pays the bills.  If you are a student landlord we also have special student tenancy agreements designed to protect landlords – for example if you agree to rent the room over the summer at a lower rent.

There are also special forms you can use if you want to permit one of your tenants keep a pet, which incorporates special pet related clauses to help you, and we have similar forms (but with different clauses!) if you agree to allow your tenant to run a home business or rent a room to a lodger, along with our guarantee and renewal forms.

Note that Landlord Law members get unlimited use of all our tenancy agreements (plus also the letters, notices and other documents which you can create via our ‘document generator system’).

You can find out more about Landlord Law here

Next time I will be writing about fire safety.

Tessa Shepperson is a specialist landlord & tenant lawyer and runs the popular Landlord Law online information service.

To see all the articles in my series please Click Here

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Section 21 Notice and Deposit Protection rules

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Validity of Section 21 Notice: Amak Property Investments v Laura Sonny [2016]

This case was an appeal by the tenant following a county court judgement relating to the validity of a s21 notice on the basis that the landlord had not complied with the deposit protection (MyDeposit) scheme rules.

The wording in the relevant Act (Housing Act 2004) has no mention of protecting the deposit as such but states that the landlord or letting agent must comply with the ‘initial requirements’ of the deposit scheme.

These initial requirements would usually mean protecting the deposit and serving on the tenant the required prescribed information, both within 30 days.

If the deposit is not served within 30 days the landlord is in breach of the rules, subject to a fine and cannot use the s21 eviction process. That is unless the deposit is returned to the tenant, in which case the landlord can serve a valid section 21 notice but is still subject to a fine if the tenant should apply to court for compensation.

If the prescribed information is not served within the 30 days, according to the wording in the Act, the landlord cannot use the section 21 process, but in this case the prescribed information can be served late to effect the serving of a valid section 21 notice. However, the landlord is in this case is still be subject to the fine.

Following the failure of Laura Sonny’s defence, filed against the landlord’s s21 possession claim at the county court, the appeal was heard at Central London before Recorder Klein.

Ms Sonny’s defence had hinged around a disputed issue of whether or not the prescribed information had been served prior to the service of the s.21 notice, which the county court had found not to have a reasonable prospect of success, based on the MyDeposits scheme rules, specifying that service of the prescribed information constituted an “initial requirement” of the scheme.

The landlord argued that s.215(2) of the HA 2004 had been complied with as the prescribed information had been served by the time of the service of the s.21 notice.

Ms Sonny’s case was that the scheme rules meant service of the prescribed information was an ‘initial requirement’ and that failure to comply with this, within 30 days meant s.215(1A) applied, and therefore a valid s.21 notice could not be served, unless s.215(2A) had been complied with – the landlord had returned the deposit.

Recorder Klein allowed the appeal and Ms Sonny’s defence was accepted, the appeal judge finding that the s21 notice was invalid because the landlord had failed to serve the prescribed information within 30 days as set out in the scheme’s ‘initial requirements’.

The judge argued that the MyDeposits scheme makes service of the prescribed information an initial requirement, so failure to comply came under the sanctions at s.215(1A) not s.215(2). So the landlord needed to return the deposit to the tenant – with any agreed deductions – before a valid s.21 could be served.

The case underlines the importance of landlords and agents to be fully conversant with whichever scheme they are using, as had the landlord used a different scheme, which does not make serving the statutory information within 30 days an ‘initial requirement’, the notice would have been valid.

This was an appeal heard by a Circuit Judge and not the High Court, therefore it is not binding. However, does give a valuable steer for landlords and agents and for District Judges.

It is also interesting that it gives landlords and agents at least some high degree of confidence that returning the deposit can enable them to serve a valid s21 notice if either the deposit or the statutory information, or both, were not served within 30 days.

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