September 2014

Scotland has voted No for independence, resulting in Alex

Salmond resigning

The Monetary Policy Committee has once again experienced

a 7-2 voting split regarding the base rate

Kensington and Start have been sold by Investec

HML News

Time for a fresh look at free

debt advice? Peter Munro, head of business development –

creditors at Payplan, discusses the benefits

lenders and customers can enjoy when

partnering with a debt advice provider. The term „customer outcome‟ now dominates

dialogue in the collections arena. All firms are

tasked with evidencing that they are delivering

good customer outcomes and debates have

been plentiful around how such things can be

measured and quantified.

I have witnessed many mortgage lenders

wrestling with the concept of a good outcome

(too little forbearance vs too much

forbearance, and everything inbetween) and it

is clear that in today‟s environment that

delivering a good outcome cannot be achieved

by focusing on the customer‟s mortgage needs

alone – a more holistic approach is key.

A classic example is where a customer has

unsecured debt problems running alongside

their mortgage arrears. Completing an income

and expenditure form and setting up an

affordable payment arrangement on the

mortgage may have previously been deemed

„enough‟, but if you have not tried to support

the customer with their unsecured problem,

have you really delivered a good outcome?

“The customer should be signposted to free

money advice” would be a common response

to the above, but how do you measure the

effectiveness of that signposting? Does the

customer actually seek the advice they need?

What happens next on that journey?

Working with lenders to help customers

Over the last 18 months, Payplan has been

working closely with forward-thinking lenders

that recognise that simply signposting a

customer to free debt advice is not enough and

that their customers deserve access to a fully

joined up and managed service. By using

Payplan‟s secured referral process they can:

• transfer customers straight through to free

debt advice at that crucial „moment of truth‟

• exchange key mortgage information to

ensure complete clarity for all parties

• receive detailed outcome Management

Information on every referral, solving the

„debt advice black hole‟ and enabling full

performance management

Lenders using this service have been able to

tangibly demonstrate the value of free debt

advice to their customers and also to their

bottom line, as the Payplan intervention helps

customers to prioritise their mortgage

arrangements and resolve unsecured debt

problems – a great outcome by any measure.

The Financial Conduct Authority certainly sees

the value in free debt advice partnerships, with

its February arrears and forbearance thematic

review concluding:

“Firms that made it easy for customers to obtain

early money advice saw better outcomes. One

lender had piloted a „hot key‟ system which

allowed agents to transfer borrowers directly to

a third-party debt advice agency. The advice

was independent and free of charge to the

borrower. As a result of these referrals, some

borrowers prioritised their essential outgoings

against non-essential expenditure. The lender

experienced up to a 50% increase in payments

received, resulting in reduced levels of arrears

and improved outcomes for both borrowers and

the firm.”

Continued over the page

HML News

The Institute of Money Advisors also sees the

benefits of lenders and advice providers

working strategically together. In 2013, it

awarded Payplan its Best Partnership award,

stating:

“It was fully evident that Payplan’s nomination

demonstrated all the attributes we would hope

to see in the Best Partnership category:

innovative thinking, creativity in collaboration,

the formation of partnerships through

breakthrough techniques, effective use of

resources and a willingness to explore non-

traditional methods in solving age old

problems. The judges were most impressed

with the outcomes Payplan generated for

homeowners with problematic debt, which is

perhaps the most robust test of the success of

any new initiative. They are worthy winners.”

So as the debate around delivering good

customer outcomes continues, now really is

the time to take a fresh look at free debt advice

- a now key component in any customer-

focused collections strategy.

HML has been shortlisted

for two National Outsourcing

Association Awards.

We have been shortlisted in the Best

Contribution to the Reputation of Outsourcing

and the IT Outsourcing Project of the Year

categories.

HML submitted Destination 100%, its journey

to a total quality concept in the mortgage

servicing sector, into the Best Contribution to

the Reputation of Outsourcing category. The

financial services sector is traditionally

reactionary, rather than preventative, and HML

believes this needs to change if the customer

is to be placed at the centre of everything

financial services companies do.

Our second submission was for its Single Euro

Payments Area (SEPA) project into the IT

Outsourcing Project of the Year category.

SEPA is European 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.

Bob Andrews, chief operating officer,

said: “It is testament to the quality of our

project teams and the wider staff at HML, that

we have been shortlisted for two NOA Awards.

“HML is proud to have been shortlisted in such

competitive categories, and we believe our

experience, systems, people and willingness

to embrace innovation are key differentiators in

the third-party financial administration market.

We want to push the quality boundaries for

borrowers and our clients in the UK and

Ireland‟s outsourcing sector, and being

shortlisted for these awards is a result of our

determination.”

HML News

Expect the inevitable when

interest rates rise

When the bank rate goes up, so will the

number of repossessions, but there are

variations in who will be affected, as Sarah

Watley, partner and head of asset recovery at

Moore Blatch, explains to Mortgage Finance

Gazette.

As a law firm that has specialised in

repossessions for over a decade, we know

that any rise in interest rates will have

consequences for repossession figures, the

effects of which could be felt immediately, and

certainly within the next six months.

Predictions on interest rate rises are best left

to the experts, but an unexpected jump in

inflation in June has reinforced the expectation

that the UK could see its first interest rate rise

before the end of the year.

Lender forbearance, combined with interest

rates at a historic low of 0.5% since March

2009, have kept repossessions at their lowest

levels since 2007. Mortgage arrears have also

declined and, according to the Council of

Mortgage Lenders, as at the end of 2013 just

1.29% of all mortgages were in arrears. This

compares with 1.40% of mortgages at the end

of 2012, and a peak of 1.88% in the second

quarter of 2009.

This is good news and coupled with the

booming housing market, at least in Southern

England, has left a new generation of

prospective homeowners viewing property

through what some would argue are rose-

tinted glasses.

Detailed analysis

Unsurprisingly, interest rate sensitivity is not

uniform – as shown by recent detailed analysis

of near-prime customers by John

Grimbaldeston, director of products and

marketing at our business partner HML, along

with our own analysis of near-prime

customers.

HML carried out sensitivity analysis on over

8,000 near-prime cases to establish what

impact an interest rate rise would have on

affordability and thus the likely consequences

for mortgage repayments. This detailed

analysis looked at various risk factors.

In terms of the analytics, HML reviewed

accounts that currently had no arrears, but had

historically shown signs of financial issues. For

example: one missed payment in the last one

to six months, one missed payment in the last

seven to 12 months and two missed payments

in the last seven to 12 months.

Continued over the page

HML News

It then looked at the industry definition of

serious, moderate and minor credit

impairment, as well as active credit

commitments and current interest rates

payable.

The analysis showed that the majority of

customers (59%) could absorb an interest rate

rise based on small progressive increases of

0.25% possibly over an 18-month period, up to

around an increase of 1.5%. However, it also

identified the fact that 16% would be sensitive

to even small interest rate rises and this could

impact on mortgage payments.

Arrears yo-yo

One of the most interesting findings though

was the impact of the number of times a

customer has been into arrears and then come

out of arrears in the last 24 months. A

significant number of customers pay, then fall

behind, and then manage to pay, thus

suggesting that they have the ability to pay

overall, but may have specific challenges at

certain times.

Our own understanding based on the 1,000

cases that we have in the repossession

process supports HML‟s findings, and

highlights, unsurprisingly, but none the less

importantly, the fact that the further away from

prime you move, the greater the sensitivity to

rate rises.

These borrowers would be much more

seriously affected due to far more restricted

availability of funds to absorb any increase in

expenditure and the lack of alternatives when

considering refinancing options.

Affordability

A further and vital risk factor that HML

considered was the customer‟s

affordability, in particular the ratio of the

mortgage payment to their unsecured

balances. For example, those that have

had an increase of greater than 50% in

their unsecured credit balances in the

last 12 months and conversely a

reduction of 50% of their unsecured

credit balances in the last 12 months.

My personal view is that for these

customers, once Bank base rate hits 1%

or more, the level of repossessions will

start to rise. Once they exceed 1.5%, the

figures could be significant. The reality is

that most customers will need to look at

re-budgeting once we know what the

interest rate rise is going to be.

HML is currently considering whether it

would be beneficial to provide its

customers with a personalised letter to

make them aware of the financial impact

of an interest rate rise and giving an

illustrative range of different rate

increases, for example 0.5%, 1%, 2% or

3%, so they can see the actual increase

in their monthly repayment.

This is a sensible strategy as it would

enable customers to assess whether

they can afford payments under different

rate rises and, if they feel they can‟t,

encourage them to make contact.

Engaging the customer as soon as

possible is key, especially those in the at

risk categories.

Industry Statistics

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

when the statistic was published

** Figure has seen been revised upwards to £19.7 billion

AUGUST ‟14 JULY ‟14 JUNE ‟14

Consumer Prices Index 1.5% 1.6%

1.9%

SEP ‟14 AUG ‟14 JULY ‟14

BoE Base Rate 0.5% 0.5% 0.5%

MAY-JULY „14 APR-JUNE „14

MAR-MAY „14

Unemployment Rate (ONS) 6.2% 6.4% 6.5%

AUG „14 JULY „14 JUNE ‟14

Halifax House Price Index Down 0.1% on JULY Up 1.4% on JUNE Down 0.6% on MAY

Average price Average price Average price

£186,270 £186,322 £183,462

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

Down 5% on July Up 7% on JUNE Up 4% on MAY

£18.6 billion £19.1 billion** £17.5 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 0.1% on July to 1.5% in

August. The largest contribution to the fall in

the rate came from the motor fuel and food

and non-alcoholic beverages sectors. This

was partially offset by the clothing, transport

and alcohol 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 declined by 0.1%

between July and August to £186,270.

However, values in August were 3% up on the

quarter and 9.7% higher than the same month

in 2013.

Housing economist at Halifax Martin

Ellis said: “Housing demand is supported by

continuing economic recovery, growth in

employment, improving consumer confidence

and low mortgage rates. Nonetheless,

earnings growth that remains below consumer

price inflation, and the prospect of an interest

rate rise at some point over the coming

months, are likely to curb demand.

“There are some signs of an improvement in

housing supply, both in terms of more second-

hand properties coming onto the market and

increased numbers of new homes. These

trends, if sustained, should help to improve the

balance between supply and demand,

contributing to an easing in the pace of house

price growth."

Unemployment Rate

The unemployment rate for May to July stood at

6.2%, representing 2.02 million people. It is the

largest annual fall in unemployment since 1988.

Compared to same period in 2013, the number

of individuals in employment rose by 774,000.

Gross Mortgage Lending

Gross mortgage lending stood at £18.6 billion in

August, 5% down on July but 13% higher than

the same month in 2013, when lending reached

£16.4 billion.

CML chief economist Bob Pannell

said: “The narrative of recovering house

purchase and buy-to-let activity continued

through August. However, it is important to be

aware that this picture is being flattered by

strong seasonal factors through the summer

period.

"A gentle slowing of lending activity may now be

in prospect, as a result of the continuing impact

of tighter lending rules and a softening of the

London market."

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.

Top News Stories

.

Scotland has voted No to

independence.

In the poll held on 18 September, the No/Yes

split was 55%/45%. Some 85% of the electorate

voted, with Dundee returning the highest

percentage of Yes votes at 57.4%, closely

followed by West Dunbartonshire and Glasgow.

Alex Salmond has resigned as first minister of

Scotland and leader of the Scottish Nationalist

Party (SNP) following the defeat.

In a statement, Mr Salmond said: “I am

immensely proud of the campaign which Yes

Scotland fought and of the 1.6 million voters

who rallied to that cause by backing an

independent Scotland.

"I am also proud of the 85% turnout in the

referendum and the remarkable response of all

of the people of Scotland who participated in

this great constitutional debate and the manner

in which they conducted themselves.

"I believe that in this new exciting situation,

redolent with possibility, party, parliament and

country would benefit from new leadership.

Therefore I have told the national secretary of

the SNP that I will not accept nomination to be a

candidate for leader at the annual conference in

Perth on 13 to 15 November.

"After the membership ballot I will stand down

as first minister to allow the new leader to be

elected by due parliamentary process.”

In response to the No vote, prime

minister David Cameron said: “The

people of Scotland have spoken. It is a clear

result. They have kept our country of four

nations together. Like millions of other people, I

am delighted. As I said during the campaign, it

would have broken my heart to see our United

Kingdom come to an end.

“And I know that sentiment was shared by

people, not just across our country, but also

around the world because of what we‟ve

achieved together in the past and what we can

do together in the future.

“So now it is time for our United Kingdom to

come together, and to move forward. A vital part

of that will be a balanced settlement – fair to

people in Scotland and importantly to everyone

in England, Wales and Northern Ireland as

well.”

Ahead of the vote, the Royal Bank of Scotland

(RBS) stated that should a Yes vote be

returned, one of its contingency options was to

relocate its registered headquarters from

Scotland to England.

It said the move could occur, as a Yes vote

would result in “a number of material

uncertainties”, as well as potentially impact its

credit ratings and the monetary, regulatory and

legal landscape.

RBS said before the vote: “The vote on

independence is a matter for the Scottish

people. Scotland has been RBS's home since

1727. RBS intends to retain a significant level of

its operations and employment in Scotland to

support its customers there and the activities of

the whole bank.”

Other lenders that had voiced concerns about a

Yes vote included Lloyds, TSB and Clydesdale.

Asda, John Lewis and B&Q were among some

of the high-street brands that warned

consumers that a Yes vote would impact upon

prices, pushing them up due to the new

complexities involved with trading in an

independent Scotland.

Top News Stories

Investec has sold

Kensington and Start.

Kensington has been sold by Investec to

Blackstone and TPG Special Situations

Partners (TSSP). The deal, reported to be

worth £180 million, is subject to regulatory

approval.

Blackstone and TSSP plan to develop

Kensington‟s mortgage lending business and

have appointed Ian Henderson as group chief

executive. He previously held the role of chief

executive of Shawbrook.

Mr Henderson said: “I am delighted to

join Kensington and look forward to working

with Keith Street and the management team

under new ownership. Kensington is an

outstanding business and we will use its

expertise and market position to broaden our

product range for new and existing

customers.”

David Blitzer, head of Blackstone

Tactical Opportunities, said:

“Kensington presents an exciting opportunity

to back a high quality management team and

to invest in the UK mortgage

market. Kensington is a best-in-class

specialist lender with an established track

record in the UK and strong customer

relationships. We will invest in growing the

business in the mortgage space as well as

extending the range of its activities in specialty

finance.”

Meanwhile, Lone Star has purchased Start

Mortgages in full. Investec said it decided to

sell the £540 million Irish mortgage book in

order to simplify its banking model.

The Bank of England‟s

Monetary Policy Committee

(MPC) has experienced a

second base rate voting split.

Ian McCafferty and Martin Weale again voted

against the decision to maintain the rate at

0.5%, after splitting the MPC in August for the

first time since July 2011.

The MPC noted that wage

inflation remains “weak”, adding:

“For most members, there remained insufficient

evidence of prospective inflationary pressures

to justify an immediate increase in Bank Rate.

These members put forward a number of

arguments, on which they each placed different

weights. There were more indications, from

business surveys, from export indicators and

from the housing market that growth was likely

to ease a little; and the downside news in the

euro area had increased the risks to the

durability of the domestic expansion in the

medium term.”

Homeownership is an

“exclusive members‟ club”.

That‟s according to the National Housing

Federation (NHF), which said only those at the

wealthiest end of the scale in the next

generation will be able to afford a home.

A new report from the NHF noted that in real

times, current first-time buyers (FTBs) have to

find ten-times the deposit that was required in

the early 1980s.

Top News Stories

The report found that the average deposit

needed today is £30,000, with a FTB

borrowing 3.4 times their annual income on

average. In 1970, this was lower at 1.7 times

an income.

In the past five years, there has been a

doubling of the number of FTBs who receive

financial help from their parents. Two-thirds of

FTBs now receive parental support in order to

buy a home.

“With the high salary and huge deposit

younger generations now need to buy even a

modest home, homeownership is quickly

becoming an exclusive members‟ club. Sadly,

it will depend on the wealth of the family you

were born into as much as your own hard

work,” said David Orr, chief executive

of the NHF.

“We‟ve found that eight out of ten people don‟t

believe any of the main political parties will

effectively deal with housing, but they still have

the chance to put that right. With a bold long-

term government plan for house building our

housing crisis is solvable. We desperately

need politicians from all sides to commit to

ending the housing crisis within a generation,”

he added.

Wages should rise in real

terms in the middle of 2015.

This is according to governor of the Bank of

England Mark Carney, who was speaking at

the Trades Union Congress annual

conference.

He said after the initial growth, the pace of

increase should then “accelerate”.

Mr Carney said: “As employment

approaches its new higher level, wage

pressures should increase and capital

investment should continue to recover.

Productivity growth should pick up bringing the

higher, sustainable pay rises that British

workers deserve.

“Specifically, the Bank‟s latest forecast expects

real wage growth to resume around the middle

of next year and then to accelerate as the

unemployment rate continues to fall to around

5.5% over the next three years. By the end of

our forecast, we see 4% nominal pay growth on

average across the economy. This is consistent

with our inflation target and the economy‟s

potential.”

Debt management firms

must raise their game.

The Financial Conduct Authority (FCA) made

the statement and said such companies must

not charge unfair fees and show that they

provide appropriate advice.

Director of authorisations at the FCA

Victoria Raffe commented: "These firms

are advising consumers who have often

reached rock bottom, so it‟s important that firms

get it right.

“Many firms are falling well short of our

expectations and they will need to raise their

game if they want to continue operating."

The regulator added that the process for

authorisation will be stricter than the licensing

regime underneath the Office of Fair Trading.