Security Blogs
Our earlier article on non-bank funding mentioned that proposals had been submitted to the Bank of England and HM Treasury to provide support packages for non-bank lenders. A decision was expected this week as to whether the submitted proposals would be accepted however discussions are still ongoing and as of yet, no decision has been made to approve the support packages.
Following the Government’s implementation of social distancing, carrying out a physical valuation has not been possible and this has lead to a suspension in new mortgage applications. As the social distancing measures continue, lenders are looking for solutions to allow valuations to be carried out remotely such as desktop valuations. Desktop valuations do not involve a physical visit to the property rather, the valuation is based on aggregate data such as comparing the 3 most recent properties in the area and other comparable properties in the local area. So, if desktop valuations offer a solution, why aren’t lenders using these? The answer depends on whether the lender securitises their loans. Securitisation is used by lenders which obtain their capital from the capital markets as opposed to the Bank of England. Lenders who secure their mortgages package up a number of these (known as mortgage backed securities) which are rated by a rating agency depending on the financial stability of the package and sold to an investment firm in return for capital. The downside of desktop valuations is that they are not readily accepted in the capital market where the securities are sold. In fact, lenders who utilise desktop valuations offer suffer financial penalties or the rating issued by the ratings agency is lower, which may make the investment less attractive to potential buyers. As social distancing measures continue for the foreseeable future, the volume of lenders accepting desktop valuations are likely to increase but it is likely to be used for residential purchase and remortgage cases to begin with.
The Scottish property market was plunged deeper into disarray on the 24th March 2020 as the Registers of Scotland (RoS) closed the application record, which records the transfer of ownership and registration of lenders charges. Since the application record was closed, RoS has been working closely with the Law Society of Scotland, UK Finance and key stakeholders to devise a solution which will keep staff safe but allow applications to be processed remotely. However, the solution was not simple to implement. Registration law in Scotland was modernised in 2014 with the introduction of the Land Registration etc. (Scotland) Act 2012 which provided RoS with a statutory basis for their powers and to implement a workable solution to reopening the application would require a legislative amendment. The Coronavirus (Scotland) Act 2020 came into force on the 7th April 2020 and provides a workaround to allow applications to be submitted electronically however, this is still in the beta testing phase. Myself and McVey and Murricane have been working closely with RoS trailing the new workarounds and providing feedback. For further information, please contact Fallon Sara Spencer , Principal and Head of Specialist Lending.
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