Money laundering, mythical beasts, oligarchs and data dumps

Money laundering, mythical beasts, oligarchs and data dumps

The Chupacabra is a native creature of Panama. The name comes from the animal’s reported penchant of attacking, killing and then drinking the blood of it’s prey, often goats.

Please humour me for a few paragraphs while keeping this thought in mind.

It has very recently come to light that offshore companies now own more than £200bn of UK residential property.

The Land Registry released, in April, a complete list of 40,000 offshore companies that own nearly 100,000 properties in England.

Many of these are in the most affluent areas of the country. London in particular. And a number of the individuals behind these companies would appear to be Russian ‘oligarchs’ although I am sure that in BBC speak, “other nationalities and/or job descriptions are available” to buy.

If you want to buy a car, house, open a bank account, get a mortgage, engage a lawyer or an accountant there are a number of hurdles us mere mortals need to overcome.

Buying a house with a mortgage requires very significant levels of checks these days if you are a mere UK resident.

Without a mortgage, it would seem, sees a very different picture, especially when ‘oligarchs’ and associated trades are involved in the vast movement of ill-gotten or plundered wealth.

It does seem to be the case that Animal Farm ‘Orwellian’ rules apply with some people being more equal than others.

The FCA clearly scratched the surface last year when it fined Barclays some £72,069,400 for failing to “minimise the risk” that it may be used to facilitate financial crime. For the record, the fine was the largest fine imposed by the FCA and its predecessor the FSA for financial crime failings.

The FCA said “Barclays did not obtain information that it was required to obtain from the clients to comply with financial crime requirements. Barclays did not do so because it did not wish to inconvenience the clients”.

So the big question here is, what checks are made when foreign oligarchs, despots, drug barons, dictators and other offshore potential ‘shady’ types buy billions of pounds worth of UK property?

Why is it that in the UK, the first, possibly only checks are about if you are who you say you are with proof by way of an original document selection from a list such as a passport or drivers licence, council tax and utility bills rather than a requirement of proof by audit trail of where the money has actually come from, ignoring any sensitivities that could fall into the category of “not wishing to inconvenience the clients”. 

But wait, a simple money laundering web-based solution is now at hand to assist the ‘authorities’ in that process.

A scan through the Panamanian law firm Mossack Fonseca’s recent , largest ever, leaked data dump should suffice, showing how clients too important to question or upset let alone inconvenience, can launder money, dodge sanctions, evade tax and avoid inconvenience.

And that brings me back nicely to the Chupacabra.

In this case it manifests itself in the form of many of Mossack Fonseca’s clients whose ‘fiscal blood sucking’ activities have been well and truly exposed.

In future will the computer say no?

Life in the old dog yet

From a point where many thought the market might never recover, second-charge mortgages have (some might consider) produced a Lazarus-like resurrection particularly over the course of the last 12-18 months. This was a sector which, immediately post-Credit Crunch, was not just considered the black sheep of the mortgage family but was cast out and thought never to be able to return again.

How times have changed. The resurgence in second-charge lending has been self-evident for some time however if you were looking for some recent statistics I would point you in the direction of those from the Finance Leasing Association (FLA) which revealed that second charge mortgage business in September this year grew (year-on-year) 41% by value and 17% by volume.

It has been something of a remarkable turn-around and if competition is any sign of a sector’s health then you would have to conclude that the second-charge market is currently ruddy of cheek. Not only do we have an increasing number of lenders actively seeking business, but we also have a growing band of ultra-competitive master broker/packager firms all chasing introduced broker business. In not so many words, if you are an adviser looking to be more active in the second-charge market then you will not be short of firms seeking to partner with you.

So, why might this be? Well, quite clearly demand for second-charge mortgages has increased considerably and there are a number of underlying reasons for this, not least the fact that we have large numbers of borrowers either unwilling or unable to remortgage.

The former group might now find themselves on mortgage deals which one does simply not move away from – remember the raft of incredible lifetime tracker rates from many years ago. Savvy borrowers who picked these up – many of which will be paying 1% or less – are not going to be inclined to move anytime soon with rates remaining at record lows. However, this does not mean these borrowers are not in need of capital therefore a second-charge mortgage can be the right option in order to secure this funding. If you wanted another clear sign of the underlying strength of the second mortgage sector at present then you only need look at the remortgage market which continues to bump along the bottom, and probably will do so until those first few Base Rate increases are made.

Like any sector of course, the spectre of regulation does hang heavy over the second-charge market and practitioners and stakeholders would do well to be aware of what is coming over the horizon because it will change the nature of the sector. In September this year the FCA outlined how it will move second-charges from its consumer credit regime to be governed instead by its mortgage rules – this means a considerable (not necessarily unwarranted) upheaval for all those active in this market. Indeed, you get the impression that the regulator has been less than impressed by what’s been going on in the second-charge market up until this point. It wants tighter MMR-esque controls covering sales practices, affordability assessments, responsible lending, handling payment difficulties etc, and the easiest way to achieve this is via the mortgage rules themselves.

Which all means that from March 2016 second-charges will be regulated under the mortgage rules and therefore everyone involved is going to need to ensure they’re compliant with them. Greater regulation equals greater cost for all and therefore we shouldn’t be surprised to see a much changed second-charge market in just over 15 months than we have now. For a start, firms are going to need to get authorised to carry out second-charge mortgage business plus there will be the added necessity of data reporting, etc.

For those advisers considering their second-charge option, the first port of call should probably be the highly active master broker/packager operators. These are the businesses which will be able to provide plenty of background information and support in terms of placing business, not forgetting the fact they have access to all lenders and products at the tap of a button. Those not opting for this distribution method will find themselves having to trawl through many many lender offerings in order to secure the right deal.

The good news is that the second-charge market looks likely to maintain its upward trajectory for some time to come. All the news coming out of the economy and the MPC suggests it will be reluctant to increase rates anytime soon and therefore those borrowers on these incredibly competitive long-term lifetime tracker rates will not wish to move elsewhere. The second-charge market seems destined to benefit from this news for the foreseeable future.

The blame for pain lies mainly in…

The buy-to-let market is never far from the headlines given there are still some deluded individuals out there who believe renting out property is some sort of ‘get rich quick’ scheme that requires no investment, resource, planning or brains.The facts of the matter are that it requires all those things and much more, and given the economic and lending environment of the past few years it has required them in spades.

Most recently we have the Bank of England requesting further powers not just for residential mortgages, but also the buy-to-let market, that will allow it to introduce LTV limits and debt-to-income ceilings on mortgages secured by landlords. It would seem that some believe buy-to-let lending is responsible for a multitude of sins – the stoking of house prices, the fall in first-time buyer numbers, the lack of house building in the UK and, most probably, global warming. All blame for these can apparently be laid at the door of landlords in the private lending sector.

This move by the Bank of England one might suggest paves the way for full regulation of the buy-to-let sector at some point in the future by the FCA. We are already getting partial regulation of mortgages taken out by ‘accidental landlords’ in 2016 when the European Mortgage Credit Directive comes into force and I suspect there will be a number who believe a sector which currently accounts for approximately 15% of all gross lending now needs to be fully regulated. The fact that buy-to-let is an investment decision and there is still no real clarity on who is actually being protected under statutory regulation, are questions that we still await answers on.

I sometimes feel like the powers that be believe the buy-to-let sector is some sort of ‘dirty secret’ they should be apologising for, when in fact it has been a particularly powerful and necessary force over the past decade or so. Of course, there were excesses in the lending community pre-Credit Crunch but thankfully those ‘practitioners’ have gone to the great buy-to-let lending graveyard in the sky and we are now left with a group of lenders who are practicing responsible lending to the nth degree.

So when I see David Cameron announce to the Conservative Party Conference that the latest addendum to the Help to Buy Scheme – the building of 100,000 homes offered to first-time buyers at below market value – will not be accessible to landlords as if they are somehow criminals, it makes my blood boil slightly. Because the fact of the matter is that without the private rental sector the ‘housing gap’ would be a chasm and the Coalition Government should forget this at their peril. With social and affordable housing levels having plummeted it has been the private rental sector that has taken up the slack and helped a roof over people’s heads that might otherwise have a complete lack of housing options.

The positives in all of this are that the buy-to-let market now has strong foundations upon which to build and I fully expect it to grow its lending share in the years to come. As stated above, it’s come a long way from its pre-Crunch days – landlords have to stump up a sizeable deposit to get a  mortgage (at least 20%) which means they have considerable skin in the game, whilst lenders have stricter criteria in terms of rental cover and have focused much more on ensuring arrears levels remain under control.

While the number of lenders active in the sector continues to grow – the launch of Fleet Mortgages next month adds another to the competitor pack – advisers have grown their knowledge base and are in a position to help and support their landlord clients like never before. Resources for advisers are readily available on sites like Panacea and specialist distributors are also active and able to help those advisers both new and established in the sector.

Given the positive nature of the sector at the moment, one suspects that not even the spectre of full regulation could dampen the spirits of buy-to-let practitioners, however these forthcoming rule changes will impact on businesses and firms should make sure they explore their significance and the cost and resource it will require to maintain compliance.