The Council of Mortgage Lenders is disappointed with the decision by the Scottish Government not to legislate to reverse the perverse effects on court proceedings for mortgage repossession hearings created by the case of RBS vs Wilson, despite the fact that most respondents to the government’s consultation would support this approach.
The judgement in November 2010 has led to lenders needing to serve a calling up notice and wait two months before they can start court proceedings for repossession, which can be detrimental both to lenders and to distressed borrowers.
CML policy adviser for Scotland Kennedy Foster commented:
"It is disappointing to find that, even though the majority of respondents to the consultation agreed with our views that there would be negative, long-term implications from this judgement, the Scottish Government have decided to do nothing.
"While the industry waits for the Scottish Law Commission's review of this area in the next couple of years, borrowers and lenders will face adverse consequences through higher costs and extensive delays."
In its response to the consultation, the CML stated that:
Post-Wilson, it is now more time consuming for a lender to obtain possession in Scotland than in any other jurisdiction of the UK.
We fully accept that there needs to be a balance between the rights of lenders as creditors and the rights of borrowers as debtors but in our view the balance in favour of borrowers certainly in the case of regulated mortgage lending following the Wilson case has probably gone too far and may not be in their best interests.
Both existing and future borrowers who are served with calling up notices are likely to experience delays and the associated costs, most notably through contractual interest, brought by the new process.
It is difficult to understand how the serving of the calling up notice provides any additional protections to the borrower. A calling up notice under the 1970 Act requires to be served on the borrower and will require repayment of the principal amount owed plus interest and expenses within a 2 month period from the date of the Notice.
The borrower will already have been informed by the lender within 15 days of going into arrears of the level of outstanding arrears and the total amount due with this information being effectively duplicated by the calling up notice.
The lender will also have used reasonable efforts to try to come to an arrangement with the borrower regarding repayment of the arrears. It is hard to see any additional benefit of 2 month period required by the calling up notice.
During that 2 month period:
- Additional interest will accrue on the loan.
- There will be additional costs which will require to be borne by the borrower in respect of the serving of the calling up notice and the lender’s administration of any arrears.
- There is also the potential for property prices to fall in that period or for there to be deterioration in the condition of the property which could lead to increased shortfall debt when the property is eventually sold.
David Levitus, director of Glasgow-based Bridging Loans Ltd, commented on the Supreme Court ruling on repossessions in Scotland:
“The Scottish repossession rules have been tightened up and calling-up notices must now be issued in all repossession cases.
"The RBS vs Wilson decision complicates matters for lenders trying to recover their loans through the Scottish legal system, which has always differed greatly from the English court system.
"However, as we are based in Scotland, with over 20 years’ lending experience, we already have the procedures in place to comply with the new rules.
"Bridging Loans Ltd have known about this ruling since it was first released in November 2010 and are still fully committed to lending in Scotland, on both bridging loans and development finance.
"In fact, we have been informing all of our brokers for some time, that it is business as usual in Scotland.”
