Everything you need to know about the top economic stories from September 2014, including the Bank of England base rate voting split, lower unemployment rate and the No vote for Scottish independence.

1. 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

2. 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

3. 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.”

4. 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

5. 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.

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 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

7. 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.

8. 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.

9. 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.

10. 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.