HML's October 2014 Commercial Bulletin contains all of the key economic data from the month, including the 6% unemployment rate, the European Union bill and the latest update from the financial sector.

1. October 2014
HML has been awarded a new S&P ranking at Above Average – Irish special servicing
The unemployment rate has declined to the 6% threshold for the first time in almost six years
Lloyds has announced it will cut 9,000 jobs as it continues its drive to save money

2. HML News
HML has been awarded a new S&P ranking.
We have been assigned a new Standard & Poor‟s (S&P) Irish special servicing ranking at Above Average.
HML also had all of its other rankings affirmed by S&P. This means the company remains with Above Average rankings as a primary and special residential loan servicer in the UK, as well as a primary residential loan servicer in Ireland.
S&P highlighted HML‟s long track record of mortgage servicing in the UK and Ireland. HML has operated in the UK for more than 25 years and has been servicing the loan portfolios of Irish lenders since 2005.
In January 2012, HML became the first residential mortgage servicer to receive an internationally benchmarked ranking from S&P for the services it provides to Irish lenders.
S&P noted the “synergies” that HML would benefit from following its purchase by Computershare, which is subject to regulatory approval.
Other areas highlighted by the rating agency include HML‟s analytical models and business intelligence, which “extensively support HML‟s servicing activity”. It also noted that HML‟s reporting guarantees the “substantial monitoring of internal operations and third-party vendors‟ activity”.
Andrew Jones, chief executive officer at HML, said: “It is great news that HML has been assigned a new Irish special servicing ranking from S&P, as well as have our Above Average rankings affirmed.
“S&P highlighted our business intelligence and analytical models, and advanced analytics are at the heart of our arrears management and wider servicing strategies. This ensures the most appropriate outcomes for borrowers can be tailored to their unique circumstances and is a key part of our continued drive to be the market leader for quality.
“Our new parent Computershare, subject to regulatory approval, will allow us to take advantage of developing business opportunities and build upon our standing in the market as the UK and Ireland‟s leading third-party mortgage administration company.”

3. HML News
Several benefits can be enjoyed by offering flexible Direct Debit dates.
John Grimbaldeston, director of products and marketing at HML, explains why offering flexible Direct Debit dates can help bring down mortgage arrears levels for both borrowers and lenders.
There is growing demand among mortgage customers to have more flexible Direct Debit dates offered by their lender throughout the lifecycle of their product. While providing customers with the option of a wide range of Direct Debit dates is common within the unsecured sector, the mortgage market is not universally as advanced in this respect.
Flexible mortgage Direct Debit dates was cited as good practice in the Financial Conduct Authority‟s (FCA) arrears and forbearance thematic review in February 2014. The regulator noted that in being more flexible, lenders would help their borrowers to prioritise their secured payments over other (unsecured) commitments and ensure their mortgage payment date works well with when their salary enters their bank account.
Not only is this good practice, but it also assists in the delivery of good customer outcomes, with flexible Direct Debit dates forming part of a lender‟s toolkit for enhancing flexibility and customer service within the mortgage market. The FCA cited one example where a firm only allowed borrowers to pay Direct Debits on one day of the month – a feature fairly uncommon in the unsecured sector, I imagine.
Higher arrears levels for non-Direct Debit payers
At HML, we have analysed over 205,000 mortgage customer accounts and found that non-Direct Debit customers are around 2.5 times more likely to be in arrears than those who pay their mortgage via Direct Debit.
This figure tells a strong story and makes a clear benefit case as to why lenders should be more flexible when it comes to the Direct Debit dates they offer their borrowers. Providing several dates can help borrowers plan their finances around their mortgage payment, ensuring it gets prioritised, rather than being an afterthought once all other financial commitments are dealt with.
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4. HML News
The table details the payments made by non- Direct Debit methods per day. It shows that some form of payment is received every day. This could suggest that if mortgage lenders were to introduce a wider variety of Direct Debit dates – preferably every day of the month – more customers might choose to move to this type of payment method.
Our data also found that 87% of non-Direct Debit payments made by customers are via a card or bank account transfer, both of which can easily be transferred to a Direct Debit arrangement.
The benefits to a borrower are clear; they can prioritise their mortgage payment via a method that is safe and avoids unnecessary bank charges. Payments are also processed through secure technology and protected by the Direct Debit guarantee scheme. Above all this, however, it can help borrowers avoid falling into arrears as a result of an inconvenient payment date or through simply forgetting – and remain flexible to meet the changing lifestyles of borrowers.
Similar benefits can be experienced by lenders, including improved arrears performance, improved cash flow and the associated value for lenders of benefiting from the FCA‟s recommendations in the arrears and forbearance thematic review, in order to achieve better outcomes for borrowers.
Helping customers to prioritise
It is common in the financial services sector for Direct Debit payment dates to influence lenders‟ customer contact and collections strategies; for example, if your date is at the beginning of the month, you would use the rest of the month to follow-up non payments. This can take up a lot of time and energy.
Instead, putting in place flexible payment dates could reduce the resources required for customer contact and collections strategies and would work with not against the ability of a borrower to make a mortgage payment on time. Our data shows that lenders who go down this route would be well rewarded – and their customers would benefit from better outcomes and an improved service.
2%
4%
4%
4%
2%
3%
3%
2%
2%
2%
2%
2%
2%
2%
2%
3%
3%
2%
2%
2%
2%
2%
3%
3%
3%
2%
4%
7%
6%
11%
7%
0%
2%
4%
6%
8%
10%
12%
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2
3
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Non-Direct Debit payments per day

5. Industry Statistics
*Date reflects what the statistic was during that period, rather than when the statistic was published
** Figure has since been revised upwards to £19.7 billion
*** Figure has since been revised downwards to £18 billion
SEP ‟14
AUGUST ‟14
JULY ‟14
Consumer Prices Index
1.2%
1.5%
1.6%
OCT ‟14
SEP ‟14
AUG ‟14
BoE Base Rate
0.5%
0.5%
0.5%
JUNE-AUG „14
MAY-JULY „14
APR-JUNE „14
Unemployment Rate (ONS)
6.0%
6.2%
6.4%
SEP „14
AUG „14
JULY „14
Halifax House Price Index
Up 0.6% on AUG
Down 0.1% on JULY
Up 1.4% on JUNE
Average price
Average price
Average price
£187,188
£186,270
£186,322
Gross Mortgage Lending (CML)
SEP „14
AUGUST „14
JULY „14
Down 1% on AUG
Down 5% on JULY
Up 7% on JUNE
£17.8 billion
£18.6 billion***
£19.1 billion**
Home Repossessions (CML)
APR-JUNE ‟14
JAN-MAR ‟14
OCT-DEC ‟13
5,400
6,400
6,100

6. Industry Statistics
Consumer Prices Index
The CPI decreased by 0.3% on August to 1.2% in September. The largest contribution to the fall in the rate came from the transport costs sector. This was partially offset by price increases in the housing and household services sector.
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 0.6% between August and September to £187,188. Values in September were 9.6% higher than the same month in 2013.
Housing economist at Halifax Martin Ellis said: “The recent rapid rise in house prices in some parts of the UK, earnings growth that remains below consumer price inflation and the possibility of an interest rate rise over the coming months, appear to
have tempered housing demand. This weakening in demand has led to a modest easing in both house price growth and sales.
“Annual house price inflation may have peaked around 10%. A moderation in growth looks likely during the remainder of 2014 and into next year as supply and demand become increasingly better balanced."
Unemployment Rate
The unemployment rate for June to August stood at 6%, representing 1.97 million people. It is the first time the rate has dropped below the two million mark in almost six years.
This represents a decline of 538,000 people out of work on the year and a 154,000 fall on the quarter.
Gross Mortgage Lending
Gross mortgage lending stood at £17.8 billion in September, 1% down on August, but it still remains 10% up on September of last year.
CML chief economist Bob Pannell said: “Uncertainty over when we will see the first increase in UK base rates is exacerbated by weaker growth prospects in several major economies, including the eurozone.
“Recent indicators and policy actions corroborate our view of a gentle easing in market conditions. There is growing evidence that mortgage lending activity, and the housing market, are sitting on a plateau.”
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.

7. Top News Stories
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The UK has been told it needs to pay the European Union (EU) £1.7 billion.
The EU has informed the UK that as a result of it recently changing how it measures the size of its economy, it has underpaid its EU „fee‟ by £1.7 billion – and the bill has a deadline of 1 December. This is because the changes to how the economy is measured means the UK has enjoyed a stronger performance than the EU originally thought.
The UK has already paid £8.7 billion, and prime minister David Cameron has reportedly called the repayment request “unacceptable”.
In a statement to MPs, Mr Cameron said: “Britain will not be paying €2 billion to anyone on 1 December, and we reject this scale of payment. We will be challenging this in every way possible. We want to check how the statistics were arrived at and the methodology that was used; we will crawl through this in exhaustive detail.”
If the UK does not pay the amount, it faces a £225 million fine that would run each year until the £1.7 billion disagreement is resolved.
The UK‟s GDP grew by 0.7% in Q3 2014.
The biggest contribution to the increase on Q2 came from the services sector, which enjoyed growth of 0.7%.
There were also increases in the production (0.5%), construction (0.8%) and agriculture (0.3%) sectors.
Despite the 0.7% increase, it does represent a slowdown from the 0.9% of growth in Q2.
Jonty Bloom, business correspondent for BBC News, commented: “Growth of 0.7% is still good; it works out at 3% a year and that is better than most of our competitors including France and Germany.
“There are also signs of some rebalancing, as construction and manufacturing grew along with the huge services sector. But the rate of growth has slowed and the fear is this may be the start of a trend.
“With wages low, a surge in high street spending is unlikely. With the eurozone in the doldrums again and Chinese growth slowing, an export boom is not on the cards either.”
Lloyds has announced 9,000 job cuts and the closure of around 150 branches.
The bank revealed the cost-cutting move despite stating that its underlying profits had risen by 35% to reach almost £6 billion.
The job losses are part of a three-year plan at the bank to save £1 billion a year by the end of 2017, as well as move many operations towards being automated.
Antonio Horta-Osorio, chief executive of Lloyds Banking Group, said: “In the first nine months, we have continued to invest in our core UK franchise to improve our products, services and processes to support customers and the UK economy.
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8. Top News Stories
“We have delivered substantial improvements to profitability while at the same time continuing to address historical legacy issues. The business is performing strongly and we are well positioned to continue to support and benefit from UK economic growth.”
TSB‟s results were also announced, with the bank‟s profit before tax in the three months to 30 September 2014 standing at £33.1 million. This is an almost 29% increase on the three months to 30 June 2014.
Paul Pester, chief executive officer of TSB, said: “While we have always been clear that we are on a five-year journey to grow TSB and its returns, it‟s great to see people right across Britain continuing to vote with their feet for TSB‟s local banking model.
“Nearly one in ten of all customers who opened new bank accounts or switched during the last quarter chose TSB – this is well ahead of our long-term target and is testament to the great service our TSB Partners continue to deliver.”
New pension rules have been announced.
Chancellor of the Exchequer George Osborne said that pension holders will be able to treat their pots like bank accounts, withdrawing as much as they would like.
He said from the age of 55, people can take money out of their pensions to spend as they wish, whether it is to save by some other means, invest or spend.
Under the new rules, the first quarter withdrawn will not be subject to tax.
According to a new survey by Hymans Robertson, up to 30% of defined benefits savers will relinquish the generous income guarantees attached to final salary pensions by moving their cash to a defined contribution scheme to take a lump sum, or use their pension in other ways.
The Bank of England‟s chief economist says he is „gloomy‟ about the UK economy.
Despite falling unemployment, Andrew Haldane has stated that low wage growth and weaker productivity contributed to his outlook.
Previously, Mr Haldane suggested that the MPC should lift the base rate sooner rather than later in order to keep inflationary pressures in check.
However, he noted a “mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target”.
Once again, the MPC was split 7-2 in favour of maintaining the base rate at 0.5%, October‟s minutes show. Ian McCafferty and Martin Weale voted to increase the interest rate by 25 basis points.