Everything you need to know about the financial services sector for August 2014, including key statistics such as house prices, the unemployment rate and mortgage lending levels.

1. 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

2. 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.”

3. 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

4. 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.

5. 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.”

6. 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

7. 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.”

8. 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.”

9. 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.”