A round-up of the latest UK economic news, including a reminder of the key announcements in George Osborne's Budget, inflation falling to 0%, the latest unemployment figures and David Cameron's comments about his re-election.

1. March 2015
Fred Crawley, from Credit Today, on why debt purchasers
need to lay the groundwork now for IFRS9
Chancellor of the Exchequer George Osborne has unveiled
the Budget
David Cameron has revealed he would not serve a third term
should he be re-elected

2. HML News
Guest blog: Fred Crawley,
Credit Today - IFRS9; lay
the groundwork now to
avoid a last-minute rush
Fred Crawley, Managing Editor of Credit
Today, explains why with a 2018 deadline
IFRS9 may not seem urgent, but could
result in a last-minute panic for mortgage
portfolio owners if they do not lay the
groundwork now.
One theory of time management, attributed to
US President Dwight D. Eisenhower, has it
that “what is important is seldom urgent, and
what is urgent is seldom important”.
You‟d be hard pressed to find an environment
that proves the exception to this rule more
neatly than the world of credit provision as it
goes through Financial Conduct Authority
(FCA) authorisation.
In the face of a regulator that has already
shown its teeth, and which is demanding
considerable administrative feats from firms, it
seems that compliance has become the
perennial hot topic: the task that is both
important and urgent.
Nevertheless, Eisenhower still has a lesson for
the market: companies that overlook important
issues beyond those that are most urgent, do
so very much at their own risk.
For me, the implementation of IFRS9 (and the
changes it will prompt for creditors) falls solidly
into this category of important but not urgent.
IFRS9 – important but not urgent?
Because while it may not seem pressing at the
moment – the change in reporting standards
won‟t come into force until January 2018 – it‟s
certainly important, requiring a massive rethink
on the part of any business that deals with
default risk.
The implementation will require lenders to
assess the probability of default on all
exposures, not just impaired accounts, and
make provisions for loss accordingly. As a
result, there may well be significant increases in
impairment charges across the industry.
Not only this, but businesses will need to be
sitting on a long tail of historic performance data
in order to handle this new approach to
provisioning: the bottom line is that the
groundwork for IFRS9 needs to be laid now.
If you look at things in this way, IFRS9 may be
a more urgent issue than it seems: at the very
least, it is an issue lenders still have a chance
to confront before a sense of urgency develops.
Continued over the page

3. HML News
What this means for debt purchasers
I‟ve been interested to find out what IFRS9
means for the mortgage business, and also for
other verticals covered by Credit Today, for
example debt purchase. In the case of those in
the business of buying books of debt, the
changes wrought could have a dramatic effect
on portfolio pricing – and yet planning for
IFRS9 has taken a solid back seat to
discussion of FCA compliance, at least in the
discussions I have been a part of.
As such, Credit Today will be working with
HML to broadcast a webinar later this year,
looking at what businesses must do now in
terms of tracking, scorecarding, and data
curation to ensure they aren‟t caught out come
2018. HML has been a good partner to work
with on this project due to the sheer amount of
mortgage data the business is sitting on – with
data for more than one million accounts on file,
covering all sorts of risk profile, it is in a good
position to model outcomes.
Indeed, during the broadcast, we hope to be
able to use some of this information for live
presentation, forecasting what may happen to
impairment charges across a number of
different portfolio types, in a number of
different circumstances, following the
implementation of the new standard.
As well as looking at HML‟s core market in
property, we may also look to extend the
analysis to look at what material impact IFRS9
could have on other sectors, such as motor
finance and debt purchase, as mentioned
above.
It will be interesting to see what findings
emerge in the webinar, but even before the
number crunching one message is clear: this
is an issue that portfolio holders should flag as
important before it becomes urgent.
Disclaimer: The views expressed in this blog are Fred
Crawley's and do not necessarily reflect those of HML
Overview of the MFG
Conference.
The Mortgage Finance Gazette‟s inaugural
conference was held at The Gibson Hall,
Bishopsgate, London on 11th March 2015. HML
sponsored the conference and the lunch and
our commercial director Paul Fryers spoke at
the event.
Originate, securitise, trade and repeat
Paul spoke to delegates about whether we will
see the return of the create and trade model. At
the start of 2014, HML expected several new
lenders to enter the mortgage market as a result
of lower securitisation costs, increasing house
prices and improved economic sentiment.
Indeed, we have seen new challengers to
traditional lending enter the sector, such as
Harrods Bank and Charter Savings Bank and a
consolidation in the position of existing
challengers such as Aldermore and Paragon.
The Council of Mortgage Lenders has said that
gross mortgage lending is set to climb to £222
billion in 2015, up from £206 billion last year.
This is expected to increase further still in 2016
to £240 billion. There appears to be plenty of
opportunity for new lenders to come to the fore,
as well as alternative funding lines. Two
questions can be asked; is the dominance of
big banks about to be shaken up by specialist
and niche lenders and are we set to see a re-
emergence of the originate-securitise-trade
cycle?
Securitisation fell out of favour following the
economic downturn, but when used correctly, it
can increase the supply of credit, in turn
supporting financial recovery.
Continued over the page

4. HML News
Unlike some deals at the height of the boom,
today‟s securitisation deals are much clearer,
with extensive ongoing loan level reporting. It
is telling that the regulator and the Bank of
England have asserted their confidence in
securitisation, so long as it is deployed in the
right way.
Investors, asset traders and lenders coming to
prominence are in a much stronger position
(thanks to improved confidence and macro-
economics) to originate new loans, securitise
their portfolios and trade - raising funds and
repeating the process. Portfolio trades can be
a robust foundation for asset traders to quickly
scale up, enabling them to expand the
originate-securitise-trade model to maximise
return on investment.
A strong speaker line-up
Below is a brief overview of the key points
from some of the other speakers at the MFG
Conference 2015:
Linda Woodall, director of mortgages and
consumer lending sub-division, Financial
Conduct Authority (FCA)
Mortgage Market Review (MMR):
• Affordability tests are being applied to
existing customers, preventing many from
moving to new deals. The FCA finds this
“disappointing”.
• Interest-only mortgages do have a role to
play, with this product not banned by the
regulator. In 2015, just six per cent of new
mortgages were interest-only, a decline
from 32 per cent in 2007.
Retirement:
• A key test for borrowers is affordability, not
age. The FCA does not prevent lending into
retirement and a common sense approach
is required.
Martin Stewart, director of banks, building
societies and credit unions, Prudential
Regulation Authority (PRA)/Bank of England
New lenders:
• In the first two years since its inception, the
PRA granted 11 new licences. It expects
around 5-6 new banking licences will be
granted each year.
• The thing that stands out new entrants from
the crowd is their focus. They may not have
significant market share, but they offer USPs,
specific products and specific service.
• At present, two non-bank lenders are in the
process of becoming banks. There is
particularly large demand from overseas for
lending and lenders.
Paul Broadhead, head of mortgage policy,
Building Societies Association (BSA)
Retirement:
• The BSA is commencing work in April with
lenders to develop a policy for older-age
lending. Conduct and reputational risk is the
key concern for lenders.
MMR:
• Using MMR rules and affordability tests to
prevent a customer from moving to a
cheaper product is poor practice.
• Appointment delays at larger banks as a
result of the MMR has provided opportunities
for smaller lenders and intermediaries, with
small societies leading the way regarding the
transitional rules for new customers.

5. Industry Statistics
*Date reflects what the statistic was during that period, rather than
when the statistic was published
FEB‟15 JAN ‟15 DEC ‟14
Consumer Prices Index
0% 0.3% 0.5%
MAR ‟15 FEB ‟15 JAN ‟15
BoE Base Rate 0.5% 0.5% 0.5%
NOV-JAN „14/‟15 OCT-DEC „14 SEP-NOV „14
Unemployment Rate (ONS) 5.7% 5.7% 5.8%
FEB „15 JAN „15 DEC „14
Halifax House Price Index Down 0.3% on JAN Up 2% on DEC Up 0.9% on NOV
Average price Average price Average price
£192,372 £193,130 £188,858
Gross Mortgage Lending (CML) FEB „15 JAN „15 DEC „14
Down 9% on JAN Down 14% on DEC Unchanged on NOV
£13.4 billion £14.3 billion £16.5 billion
Home Repossessions (CML) 2014 JULY-SEP ‟14 APR-JUNE ‟14
21,000 5,000 5,400

6. Industry Statistics
Consumer Prices Index
The CPI decreased by 0.3% on January to 0%
in February. The main contributions came from
the recreational goods, food and furniture and
furnishings 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.
The Monetary Policy Committee once again
voted unanimously to keep the base rate at
0.5%.
Halifax House Price Index
The average price of a home decreased by
0.3% between January and February to
£192,372. Values in February were 8.3%
higher than the same month in 2014.
Housing economist at Halifax Martin
Ellis said: “The firming in price growth
shown by the recent pick-up in the three
month-on-three month comparison
and indications of a modest rise in activity are
likely to be due to a boost to housing demand
as a result of increases in real earnings and
spending power, further recent falls in
mortgage rates and stamp duty changes.
“The supply of both new and secondhand
homes available for sale remains low; another
factor that is likely to be supporting house
prices. Supply remains tight despite
housebuilding in England increasing for the
second consecutive year in 2014 and a recent
rise in the number of properties coming on to
the market.”
Unemployment Rate
The unemployment rate for November to
January stood at 5.7%, representing 1.86
million people.
There were 30.94 million people in work, an
increase of 143,000 on the previous quarter.
Gross Mortgage Lending
Gross mortgage lending stood at £13.4 billion in
February, 9% down on December and also on
the same month in 2014. It is also the lowest
monthly estimate since April 2013.
CML chief economist Bob Pannell
said: “Earlier soft approvals data meant that
weaker February lending has not come as a
surprise. Seasonal factors tend to weigh on
activity at the start of the year, but looking
through these, the underlying picture appears to
be stabilising. We expect lending to improve in
the coming months, as employment and
earnings continue to pick up and the impact of
recent stamp duty reforms start to feed
through."
Home Repossessions
Repossessions declined to 21,000 in 2014,
down 26,000 on 2013 and the lowest number
since 2006, the CML revealed.
Paul Smee, director-general of the
CML, said: “The relatively low rate of
repossession among owner-occupiers - around
1 in 600 mortgages last year - should help to
reassure borrowers that, if they do face
payment difficulties, lenders will work with them
to try to resolve their problems. Repossession is
only ever a last resort.”

7. Top News Stories
.George Osborne has
unveiled the Budget 2015.
A brief overview of the Budget includes:
• The Treasury will sell a further £9 billion of
Lloyd's shares and launch a sale of £13
billion of Bradford & Bingley and Northern
Rock mortgage assets
• Unemployment is expected to fall to 5.3%
this year, with the highest number of people
in work recorded
• Osborne stated that a disorderly Greek exit
from the Eurozone could have a serious
impact upon the UK‟s economic recovery
• The banking sector will be asked to
contribute more - the bank levy will be
increased by 0.21 per cent, raising an
additional £900 million a year. Banks will also
no longer be able to offset customer
compensation for products such as PPI
against corporation tax
• In 15 years, the country has the opportunity
to overtake Germany as having the strongest
economy in Europe
• Fuel duty will no longer increase in
September, making it the fifth year the duty
has been frozen
• A new Help to Buy ISA will be launched,
where for every £200 saved for a deposit, the
government will add £50
Mr Osborne opened his speech by
saying: “Five years ago, our economy had
suffered a collapse greater than almost any
country. Today, I can confirm: in the last year
we have grown faster than any other major
advanced economy in the world. Five years
ago, millions of people could not find work.
Today, I can report: more people have jobs in
Britain than ever before.”
John Cridland, director-general for
the Confederation of British Industry,
commented: “Banks play an important role
in financing the economy, so repeated changes
to the bank levy are unhelpful because they
create uncertainty and have a negative impact
investment and lending.
“While it is right that banks should pay their fair
share, banks like any business need
consistency around their tax liabilities.”
Mr Cridland also commented on the new Help
to Buy ISA, stating: “The new housing ISA
offers a boost to first-time buyers looking to
save for a deposit and get on the housing
ladder. However, there is an urgent need to
ramp up the supply of new homes to deliver the
240,000 needed each year.
“The creation of 20 new Housing Zones is a
step in the right direction, but we need to up the
pace of delivery to ensure that house prices
remain in reach for first-time buyers.”
The CML also commented on the Help to Buy
ISA, with Paul Smee agreeing that the supply of
sustainable and affordable housing is required.
According to the CML, the average first-time
buyer deposit stands at £25,200. The lowest
average is in Northern Ireland, with a typical
first-time buyer deposit £14,600. The highest,
meanwhile, is in Greater London at £69,600.
Mr Osborne closed his speech by
stating: “The share of national income taken
up by debt - falling. The deficit down. Growth
up. Jobs up. Living standards on the rise. Britain
on the rise. This is the Budget for Britain. The
comeback country.”

8. Top News Stories
In response, City AM reported that Robert
Oxley, campaign director of Business
for Britain, said: “Gerry Grimstone rightly
supports an EU referendum, but is wrong to join
in the scaremongering that life outside of the EU
would be disastrous for the UK. Britain inside a
significantly reformed EU, or outside with the
right deal would be in a far better position than if
we stick with the status quo or only pursue timid
reforms.”
David Cameron will not serve
a third term if he was re-
elected.
Speaking to the BBC, the prime minister - who
is currently on his first term - said it would be
better for new talent to take over.
Mr Cameron said: “There definitely comes
a time where a fresh pair of eyes and fresh
leadership would be good, and the
Conservative Party has got some great people
coming up - the Theresa Mays, and the George
Osbornes, and the Boris Johnsons.”
Both Labour and the Liberal Democrats have
suggested Mr Cameron is being presumptuous
by commenting on a third term.
UK unsecured household
debt is set to rise to £10,000.
According to PwC, UK unsecured debt could
reach £10,000 per household by the end of
2016. Last year, unsecured debt climbed by 9%
to, in cash terms, an all-time high of £239
billion.
Inflation has fallen to 0%,
with suggestions that the UK
could enter a period of
deflation.
The British Chambers of Commerce‟s chief
economist David Kern said he did not believe
there would be a long period of deflation and
that the 0% rate will lead to stronger economic
growth as people‟s spending power increases.
The Bank of England had previously noted that
inflation had the potential to dip into negative
territory in spring as a result of falling oil prices.
However, Robert Peston, the BBC‟s economics
editor, said that should stagnated prices
continue for a long period of time, this could
depress the economy, with consumers putting
off big purchases on the basis that they expect
prices to fall further still or continue to remain at
a low cost.
The chairman of Standard
Life has voiced concerns
about the UK leaving the EU.
Speaking at a CityWeek conference, Sir Gerry
Grimstone said the move would be “disastrous
for London and the UK”.
He told delegates that the single market is
imperative for the UK and the country‟s financial
services industry needs to promote the
importance of remaining in the EU.