August 2014

The Bank of England‟s Monetary Policy Committee has

experienced the first base rate voting split since July 2011

Repossessed properties sell for typical 60-70% of true market

value

Securitisation costs are declining, resulting in a potential influx

of new lenders into the market

HML News

Repossessed properties

typically sell for 60-70% of

true market value.

The table shows the regional breakdown of

estimated proceeds of sale as a percentage of

property value.

Northern Ireland is the most affected, where

properties repossessed between 2008 and

2013 sold for an estimated 42% of true market

value.

Scotland, the North-West and the North are in

joint second place, with repossessed

properties selling at 63% of their full potential.

The least affected region is Greater London,

where repossessed properties sold for an

estimated 78% of true market value.

Damian Riley, director of business

intelligence at HML, said: “Many

repossessed Britons do not realise that they

may still owe their former mortgage lender

money if the property sold for less than the

value of their mortgage.

“As our recent shortfall debt regional figures

noted, over 188,000 former UK mortgage

holders still owe their former mortgage lender

money, with an estimated 83% of

repossessions in shortfall, with the average

shortfall £43,000. One reason for the

differences in shortfall positions across the UK

is the „forced sales discount‟ i.e. the reduction

in sale prices of homes that have been

repossessed, compared to the wider market.

This observed drop in price is as a result of the

deteriorating condition of empty repossessed

properties once utilities are disconnected and

general maintenance reduced or stopped.

“The regional figures show there is a

North/South divide, with repossessed

properties typically selling for well below

market value more in the North than in the

South. At HML, we believe that assisted

voluntary sales are one way to help reduce

the shortfall on a sale price. This is where

we help our clients‟ struggling mortgage

borrowers remain in their homes while a

sale completes - rather than face

repossession and potential eviction - by

finding the best price, arranging for their

lender to cover the costs of conveyancing

and solicitors and helping the borrower find

affordable living arrangements.

“As always, we urge borrowers to contact

their lender as soon as possible if they are

struggling, or may soon struggle, to keep

up with their mortgage repayments.”

HML News

HML has been shortlisted

for two National Outsourcing

Association (NOA) Awards.

It has been shortlisted in the Best Contribution

to the Reputation of Outsourcing category for

Destination 100%, as well as the IT

Outsourcing Project of the Year for the SEPA

project.

SEPA - which stands for Single Euro

Payments Area - is regulation that was

adopted in 2012 and had an initial deadline of

February 1st 2014 when European banks had

to ensure direct debits and credit transfers

adhered to it. As a European Union (EU)

member, using the euro , any Republic of

Ireland direct debit transactions must comply

with SEPA regulation as defined by the

European Payments Council and the Irish

Payment Services Organisation. However,

due to delays in some member states of

implementing the new system, the deadline

was pushed back until August 1st 2014.

HML exceeded the initial February deadline for

its Irish clients by three months.

The NOA Awards ceremony will be held on

November 20th in London.

Lower securitisation costs

could result in several new

lenders entering the market.

This is according to Steve Rogers, HML‟s

director of securitisation services, in this

exclusive article for Mortgage Strategy:

Over the next 12 months, I envisage several

new lenders will come into the mortgage

market. There are many reasons why I believe

this to be the case – including increasing

house prices and improved economic

sentiment – but one of the other major driving

forces is lower securitisation costs.

Securitisation funding costs are coming down

due to demand for these types of deals

increasing. You only need to flick through

previous 2014 editions of Mortgage Strategy to

see how many different deals have taken

place this year alone. One of the most recent

ones was by Skipton Building Society.

Skipton Building Society

The building society issued its third

securitisation transaction in April this year,

which raised £400 million of funding. The

transaction was well received by the market,

with an oversubscribed order book and a large

proportion of interest from other banks and

building societies.

Anthony Chapman, group treasurer

at Skipton Building Society, said: “As

a mutual building society, our focus is raising

funding through retail savings which then

largely supports our mortgage lending. It is

important, though, to have a diverse funding

platform to strengthen our overall balance

sheet and provide safety to our savers, as well

as increasing our ability to lend to our

mortgage customers. As such, for the society,

securitisation is an effective additional funding

tool which complements our key retail

savings.”

Continued over the page

HML News

Lender competition is increasing

The securitisation market has certainly been

kick-started, and will continue to flourish,

attracting an increasing number of new

entrants. Indeed, for those lenders that choose

securitisation as a funding tool, there has been

a significant decrease in costs over the past 12

months, however the standard variable rate of

mortgages hasn‟t followed suit. As such,

margins for lenders that securitise are

improving, making the business model more

attractive.

We shouldn‟t also forget that aside from

origination, better prices could be achieved by

lenders looking to sell legacy books, with

potential buyers benefitting from the lower

funding costs in the market and then achieving

the instant scale that a portfolio purchase can

provide. Current activity amongst „buy side‟

market participants - such as private equity

and hedge funds - is high, and interest in

potential portfolio sales is significant.

In line with increasing homebuyer demand and

higher house prices, it looks as though the

Council of Mortgage Lender‟s initial forecast of

£195 billion of mortgage lending in 2014 will

certainly be realised, if not surpassed.

Director-general Paul Smee did caveat in a

blog for HML that 2015 lending growth is

expected to be “really quite muted” due to

expenditure constraints for consumers, but I

expect the securitisation market will continue

to grow in readiness for buoyant demand

thereafter.

When asked whether he thought new lenders

will come on to the market as a result of

cheaper securitisation costs, Mr Chapman

added: “There are certainly greater

opportunities for institutions to access the

securitisation market at much more attractive

levels than we have seen for a long time. For

the society, it is important to make decisions

that are in the best interests of our members

and support our savers, as well as our

mortgage customers, and as such

securitisation is a tool to support and enhance

this model.”

Securitisation – no longer a foe?

Following the global economic crash,

securitisation did get a lot of bad press.

However, carried out correctly, it can be a vital

tool to help boost the economy by increasing

the supply of credit. Indeed, the Financial

Conduct Authority and Bank of England

support securitisation for these very purposes,

but only where deal structures are transparent

and there is extensive ongoing reporting.

This is where securitisation fell down in the

past. In some cases, deals structures were

unclear and the quality of the ongoing

reporting was poor, but this has vastly

improved. In recent years the improvement in

the quality of deals, driven in part by the

regulators and central banks, is why they are

much more comfortable with the concept of

raising money this way again.

Now, investors are typically provided with a

regular loan-by-loan data tape and detailed

reporting on the performance of the deal. This

did not always happen in the past, hence why

many within the market lost confidence in

securitisation. Thankfully, the industry has

moved into a new era, and it is this renewed

confidence that is attracting more lenders to

the market.

HML News

Greater London is forecast

to experience the highest

number of repossessions in

the second half of 2014.

Greater London is expected to see 1,383

repossessions, new data from HML has

revealed.

The data comes as the Council of Mortgage

Lenders published its UK-wide repossession

forecast, which noted that 25,000

repossessions are expected in 2014. HML‟s

forecast places the figure lower at 22,543.

Overall for the whole of 2014, Greater London

and Wales are forecast to have the second

highest repossession rate at 0.26%.

Northern Ireland remains in first place, with a

forecast repossession rate of 0.74%. In the

second half of 2014, Northern Ireland is

expected to experience 858 repossessions.

The region expected to see the lowest number

of repossessions during the second half of the

year is the East Midlands, at 523. Overall for

2014, it has the joint third lowest repossession

rate forecast of 0.18%, representing 1,443

properties.

The region forecast to experience the least

repossessions across all of 2014 is the South

West, with a repossession rate of 0.14%, or

1,282 properties.

Damian Riley, director of business

intelligence at HML, said: “It is positive

that we expect repossessions to decline by

22% to around 22,543. However, our regional

statistics show that there are a forecasted

10,743 properties still expected to be

repossessed during the second half of this

year.

“In some cases, lenders might want to

give their customers breathing space

during the economic recovery. While low

wage growth and increasing concerns

about households‟ ability to meet higher

mortgage repayments when interest

rates rise sets alarm bells ringing for

some lenders, they also realise that now

is probably the best of times to repay or

reduce mortgage arrears, while interest

rates remain low.

“On the other hand, climbing house

prices and improved economic sentiment

(including an unemployment rate of

6.4%) could mean lenders decide to take

a tougher stance, and this could result in

a higher number of repossessions than

we have forecast. In our February

regional repossession forecast, the

unemployment rate stood at 7.1%, so it‟s

clear how quickly this number is falling.”

Industry Statistics

*Date reflects what the statistic was during that period, rather than

when the statistic was published

** Figure has seen been revised upwards

JULY ‟14 JUNE ‟14 MAY ‟14

Consumer Prices Index 1.6% 1.9%

1.5%

AUG ‟14 JULY ‟14 JUNE ‟14

BoE Base Rate 0.5% 0.5% 0.5%

APR-JUNE „14 MAR-MAY „14

FEB-APR ‟14

Unemployment Rate (ONS) 6.4% 6.5% 6.6%

JULY „14 JUNE ‟14 MAY „14

Halifax House Price Index Up 1.4% on JUNE Down 0.6% on MAY Up 3.9% on APR

Average price Average price Average price

£186,322 £183,462 £184,464

Gross Mortgage Lending (CML) JULY „14 JUNE ‟14 MAY „14

Up 7% on JUNE Up 4% on MAY Same on APR

£19.1 billion £17.5 billion** £16.5 billion

Home Repossessions (CML) APR-JUNE ‟14 JAN-MAR ‟14 OCT-DEC ‟13

5,400 6,400 6,100

Industry Statistics

Consumer Prices Index

The CPI decreased by 0.3% on June to 1.6%

in July. The largest contribution to the fall in

the rate came from the clothing, alcohol and

financial services sectors.

BoE Base Rate

The Bank of England kept the base rate at

0.5%, as well as the stock of asset purchases

at £375 billion.

Halifax House Price Index

The average price of a home increased by

1.4% between June and July to reach

£186,322.

This represents an annual increase of 10.2%

from July 2013.

Stephen Noakes, mortgages director

at Halifax, said: "While supply remains

low, housing demand continues to be

supported by a continuing economic

recovery, growth in employment, improving

consumer confidence and low mortgage rates.

However, earnings growth is still lagging

behind consumer price inflation.”

Unemployment Rate

The unemployment rate for April to June stood

at 6.4%, representing 2.08 million people.

Compared to the previous three months, the

number of individuals in employment rose by

167,000. In addition, the number of

unemployed people declined by 132,000.

Gross Mortgage Lending

Gross mortgage lending stood at £19.1 billion in

July, 7% up on June and 15% higher than the

same month in 2013, when lending reached

£16.7 billion.

CML market and data analyst

Caroline Offord said: “Mortgage activity seems to have remained robust following the regulatory changes but the eventual impact of these remains uncertain. "Property transactions in the first half of the year showed a 25% increase compared to the same period a year ago but, as set out in our recent market forecast update, we expect that intensifying affordability pressures could start to dampen this upwards trend.”

Home Repossessions

Repossessions declined to 5,400 for the second

quarter of 2014, down from 6,400 from the

previous three-month period, the CML revealed.

There were 11,800 repossessions during the

first half of this year, the lowest number since

the second half of 2006. The CML forecasts

there will be 25,000 repossessions in 2014.

CML director-general Paul Smee

commented: “Another fall in arrears and

possessions is clearly welcome and shows that

borrowers, lenders and money advisers are

generally continuing to work well to contain

payment problems where they arise, helped by

an improving economy and low interest

rates. But rates will rise at some stage, of

course, and borrowers should be planning for

that now.”

Top News Stories

.

The Bank of England‟s

Monetary Policy Committee

(MPC) has experienced a

base rate voting split.

It is the first MPC voting split since July 2011,

with seven members choosing to maintain the

base rate at 0.5%, and two voting to increase it

by 0.25%.

Ian McCafferty and Martin Weale voted against

keeping the rate at its present level.

The MPC noted a fall in unemployment and a

tightening in the labour market, which could

result in an increase in wage growth.

The UK‟s annual growth

forecast has been upgraded

by the British Chambers of

Commerce (BCC).

It has revised upwards its 2014 forecast from

3.1% to 3.2% and its 2015 forecast from 2.7%

to 2.8%. Should growth reach 3.2% this year, it

will be the first year since 2007 when it has

surpassed the 3% mark.

Director-general of the BCC John

Longworth said: “The UK must aim higher

than accepting growth rates that simply go back

to where they were before the recession, or

worse – fall even lower. If we are to maintain a

world-leading growth performance, we need a

long-term partnership between government and

business – with ministers unblocking

infrastructure projects and improving access to

finance so firms across the UK can invest,

create jobs and export.”

The housing market could

slow down during the second

half of the year.

While estate agent Foxtons reported a

significant jump in profits for the first half of the

year, it warned that the second half of 2014 was

unlikely to match such a performance.

The company‟s chief executive Nic

Budden commented: "Looking ahead to

the second half, we expect the growth in

transaction volumes to slow from the rapid rate

seen in the first half as the policy initiatives

introduced in 2014 aimed at controlling

mortgage lending, together with the expectation

of increases in interest rates, are now having an

impact on short-term demand among buyers.“

Lending to small businesses

has declined under the

Funding for Lending Scheme

(FLS).

The latest figures from the Bank of England

show that in the three months to June, such net

lending fell by £435 million.

Commenting on the figures, Irene Graham,

BBA executive director of business

finance, said: “The majority of

businesses who approach their bank for a loan

are successful and if they are not there is a

process in place that allows them to appeal the

decision. We‟d encourage business

owners thinking about borrowing to approach

their bank to learn about the range of financing

options that are available.”

Top News Stories

Prudential has revealed a

£100 million expansion.

This will include an increased presence on

platforms and a new range of Isas, in order to

move away from annuities following the April

Budget announcement regarding the products.

Jackie Hunt, UK chief executive,

explained to investors: “If you look at

money, it is moving onto platforms; it is where

customers want to deal with us, it is the way in

which our advisers want to deal with us.

“I do not think we necessarily need to own a

platform. We need to have technology and

products that can work on various solutions. I

think the lines are actually blurring between

wrap platforms, for example, and some of the

policy administration systems.”

Rents have risen above

inflation for the first time in

over a year.

The latest data from LSL Property Services

shows that the average residential rent in

England and Wales is 2% up on July 2013,

with the average monthly figure £753.

Tenant arrears levels have also declined to

7.3%, from 7.8% in June and 8.1% in July of

last year.

The North East is the only region of out ten

where rents have declined in the past year,

dropping by 3.8%. The fastest annual increase

has been experienced in the South East,

where monthly rents have climbed 3.8% in the

last 12 months.

The Royal Bank of Scotland

and NatWest have been

fined £14.5 million.

The Financial Conduct Authority imposed the

fine for serious failings in the banks‟ advised

mortgage sales business.

Two sales reviews from 2012 revealed that in

over 50% of the cases looked at, the suitability

of the advice was not clear from the call

recording or file.

Some issues flagged up during the sales

process included failing to advise those

customers who wanted to properly consolidate

their debt and affordability assessments not

considering the full extent of a customer‟s

budget.

Director of enforcement and financial

crime at the FCA Tracey McDermott

said: “Taking out a mortgage is one of the

most important financial decisions we can

make. Poor advice could cost someone their

home so it‟s vital that the advice process is fit

for purpose. Both firms failed to ensure that

their customers were getting the best advice for

them.

“We made our concerns clear to the firms in

November 2011, but it was almost a year later

before the firms started to take proper steps to

put things right. Where we raise concerns with

firms we expect them to take effective action to

resolve them without delay. This simply failed

to happen in this case.”