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February 2015 UK Commercial Bulletin

Here you can find out everything you need to know about the UK's latest financial and economic data, including the HSBC Swiss bank account scandal, house prices, the unemployment rate and Fitch's views on the purchase of UK mortgage servicers.

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February 2015 UK Commercial Bulletin

  1. 1. February 2015 Nicolette Ward, from SGH Martineau, on the creative reasons people come up with as to why they cannot pay their mortgage Fitch comments on the purchase of UK mortgage servicers HSBC has reported a 17% decline in profits
  2. 2. HML News Partner guest blog: Nicolette Ward, SGH Martineau - Creativity during distressed periods: the Freeman on the Land Movement Nicolette Ward, Client Relationship Manager for Mortgage Repossession and Sales at SGH Martineau, explains that during difficult financial periods, people can get creative with their reasons as to why they cannot pay their debts. Having provided lender recovery services for 20 years, it is often apparent that when borrowers find themselves in difficult financial circumstances, they become particularly creative with arguments as to why they should not have to pay their debts. One such example is a movement known as “Freeman on the Land”, or simply Freemen. This movement appears to have gained traction in mid 2008 (coinciding with the crash), albeit examples of this type of anti- capitalist rhetoric have been doing the rounds in the United States since the 1970s. Unfortunately, what once would have remained local, thanks to the internet has now garnered a following in Canada, Ireland and the UK. The ideology is simple enough. The Freemen believe they can opt out of being governed and what you and I understand to be the “laws” are merely a form of “contract” that applies only if people consent to it. In practical terms, this means they do not have to pay taxes, debts or mortgages. You would think that a sensible individual, having read the terms and conditions of a contract before signing it, would not be fooled into spouting nonsensical legal concepts, but you would be wrong. “Lawful rebellion” in British Freeman theory holds that one can lawfully choose to cease abiding by the laws, rule and statutes of a country by simply opting out of society and Freemen happily claim that clause 61 of the Magna Carta allows them to opt out. There are a number of websites from which followers can source standard wording which appears almost verbatim in the variety of documents that are lodged at court during the course of a possession claim and initially exercised Judges who had not seen the like before: “I, Nicolette: of the Ward family, hereinafter known as a flesh and blood human being, a living soul, do hereby make Oath and state, it is my understanding that a living breathing imaginative human being who chooses by free will not to be a member of society can be referred to as a Freeman of the Land.” Continued over the page
  3. 3. HML News Freemen also believe in dual personality - the physical human being and a legal persona. The legal person or “strawman” is a legal fiction created by a birth certificate, but like sailors lost at sea who are declared dead after seven years, every citizen is also legally dead seven years after their birth. This is utter nonsense and the good news is that no Freemen arguments (and there are many more) have ever succeeded in court. Most Judges robustly state that the arguments have no legal significance whatsoever. Cause for concern However, there is cause for concern. Often a Defendant will not admit that he or she is the person against whom a claim has been issued, won‟t give their correct name at a hearing or will state they are there 'on behalf' of the borrower. They return documents stating 'not known at this address' and as they become more entrenched in their beliefs, it can become harder for lenders to ever speak to them because they will not answer security questions, as they are not the borrower. This movement even sparked civil unrest. On one occasion in the County Court of Birkenhead, around 600 Freemen attended and tried to arrest the District Judge. Albeit, this tale still raises smirks, the sad truth is that this movement gets people into more financial difficulty, not less, including fines, contempt convictions and possibly prison and unlike Jack, who foolishly sells the family cow for a handful of beans to save the family from penury, the fairytale ending never comes for the Freemen of the Land. Disclaimer: The views expressed in this blog are Nicolette Ward’s and do not necessarily reflect those of HML. Regional repossessions expected to decline; but Greater London is forecast to experience the highest number in 2015. In 2015, 20,606 residential properties are expected to be repossessed, according to HML‟s latest regional repossession forecast. According to HML, Greater London will experience the highest number of repossessions in 2015 at 2,641. In second place is the South East, with 2,605 repossessions forecast. The region expected to see the fewest number of repossessions this year is the East Midlands at 1,027. In terms of repossession rate (which reflects the proportion of properties in the region), Northern Ireland is forecast to have the highest at 0.49%. Wales is in second place at 0.26% and Greater London is in third place at 0.25%. HML is the only organisation to provide a regional repossession forecast for the UK that includes Northern Ireland and Scotland. You can see the regional repossessions statistics over the page.
  4. 4. HML News Region Repossession Rate Forecast UK Forecast East of England 0.17% 1,742 East Midlands 0.13% 1,027 Greater London 0.25% 2,641 North 0.23% 1,045 North West 0.17% 2,153 Northern Ireland 0.49% 1,571 Scotland 0.16% 1,729 South East 0.17% 2,605 South West 0.14% 1,222 Wales 0.26% 1,354 West Midlands 0.23% 2,082 Yorkshire & Humber 0.16% 1,435 Total 0.20% 20,606 Damian Riley, director of business intelligence at HML, said: “After what has been a difficult few years for many households in the UK, it looks as though the clouds are parting and there is calm after the storm. “HML expects repossessions to stand at 20,606 in 2015, representing a repossession rate of 0.20%. A combination of lower unemployment, declining inflation and an increase in economic sentiment will no doubt have contributed to our expected decline in repossessions. “On the other hand, lenders are working hard to help customers stay in their home when experiencing financial difficulties. A combination of increased forbearance, improving macro-economics and Britons having a better handle of their personal finances is likely to have contributed to this expected decline in repossessions.” “After what has been a difficult few years for many households in the UK, it looks as though the clouds are parting and there is calm after the storm,” Damian Riley, director of business intelligence at HML.
  5. 5. HML News A third of interest-only customers immediately take up free mortgage advice. It has perhaps gone a little bit quiet on the interest-only mortgages front. During 2013, interest-only mortgages were a hot topic – and at HML, we certainly haven‟t taken our foot off the pedal when it comes to customer contact campaigns. Contacting interest-only customers to make them aware of the need to fully repay their loan upon maturity is an important starting point, but lenders should offer as many repayment options as possible – and, ideally, offer free mortgage advice. The FCA‟s interest-only review identified that approximately 600,000 interest-only borrowers will see their mortgage mature before 2020, so it is imperative that lenders ramp up their contact and support efforts – and providing free advice is one sensible option. Two lenders, similar findings HML deployed a free mortgage advice strategy on behalf of two of our clients – and the results were similar. In both cases, of those interest-only customers contacted to ask if they would like to take advantage of free mortgage advice, around a third for both lenders were prepared to be passed over to a mortgage adviser there and then. Customers were then provided with whole-of-market options. Interestingly, we carried out these particular campaigns for our clients before the Mortgage Market Review (MMR) came in. The demand for free mortgage advice was there prior to the regulation and, it could be said, backs up why the MMR is an important introduction to the mortgage market. If lenders are prepared to offer free advice to their interest-only mortgage customers, this will result in appropriate outcomes for both parties. For customers, receiving mortgage advice can help ensure the product they are on is the most suitable for their needs. Offering to put them immediately in contact with an adviser means one less thing for a customer to do and could result in them taking action to improve their financial situation – such as converting to part-and-part or full repayment. In some cases, it may be an acknowledgement that the customer cannot afford to repay the outstanding balance and therefore needs to take steps towards selling the property at the appropriate time. For lenders, having interest-only customers move to a more affordable product or increase their repayments so they will clear their mortgage at end of term improves the credit risk profile of their portfolio. The message is clear; interest-only customers are willing to accept free mortgage advice. The question is, will other lenders step up and provide this service? This blog is by Chris Mills, HML’s chief commercial officer, exclusively for Mortgage Solutions.
  6. 6. Industry Statistics *Date reflects what the statistic was during that period, rather than when the statistic was published JAN ‟15 DEC ‟14 NOV ‟14 Consumer Prices Index 0.3% 0.5% 1.0% FEB ‟15 JAN ‟15 DEC ‟14 BoE Base Rate 0.5% 0.5% 0.5% OCT-DEC „14 SEP-NOV „14 AUG-OCT „14 Unemployment Rate (ONS) 5.7% 5.8% 6.0% JAN „15 DEC „14 NOV „14 Halifax House Price Index Up 2% on DEC Up 0.9% on NOV Up 0.4% on OCT Average price Average price Average price £193,130 £188,858 £186,941 Gross Mortgage Lending (CML) JAN „15 DEC „14 NOV „14 Down 14% on DEC Unchanged on NOV Down 9% on OCT £14.3 billion £16.5 billion £16.9 billion Home Repossessions (CML) 2014 JULY-SEP ‟14 APR-JUNE ‟14 21,000 5,000 5,400
  7. 7. Industry Statistics Consumer Prices Index The CPI decreased by 0.2% on December to 0.3% in January. A continuing decline in motor fuels prices was a main contributor to the slowdown of the inflation rate. 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%. In previous months, Martin Weale and Ian McCafferty split the MPC 7-2 and wanted to increase the base rate by 25 basis points. Halifax House Price Index The average price of a home increased by 2% between December and January to £193,130. Values in January were 8.5% higher than the same month in 2014. Housing economist at Halifax Martin Ellis said: “This bounceback in house price growth in January coincides with reports of the first rise in mortgage approvals for six months in December. These improvements may indicate that the recent declines in mortgage rates, the reform of stamp duty and the first increases in real earnings for several years are providing a modest boost to the market. It is, however, too early to draw any firm conclusions. “Housing demand should continue to be supported by an expanding economy, continuing low mortgage rates and a boost to households‟ spending power resulting from lower consumer price inflation and reduced fuel bills. Nonetheless, we expect the overall downward trend in house price growth seen since last summer to continue over the coming months.” Unemployment Rate The unemployment rate for October to December stood at 5.7%, representing 1.86 million people. There were 30.90 million people in work, an increase of 608,000 compared to a year earlier. Gross Mortgage Lending Gross mortgage lending stood at £14.3 billion in January, 14% down on December and 11% lower compared to January 2014. CML chief economist Bob Pannell said: “The softer pace of approvals through the second half of last year contributed to the relatively weak pace of mortgage lending in January. Although seasonal factors will continue to weigh on activity levels for a while longer, we expect the underlying picture to pick up over the coming months, in line with stronger earnings and employment, gentle interest rate trends and recent stamp duty changes.” 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.”
  8. 8. Top News Stories .Fitch has commented on the purchase of UK mortgage servicers. The rating agency noted that sometimes, uncertainties can arise as a result of third-party mortgage administrators being purchased. For example, this can include operations, post- acquisition strategy and the potential impact on performance and stability. Fitch upgraded HML's Special Servicer Rating just one month after we were acquired by Computershare. The rating agency explained the reasoning behind its decision. Computershare owns a US mortgage servicer, Specialised Loan Servicing (SLS). Since it was purchased by Computershare in 2011, SLS has expanded its servicing portfolio and improved technology and control systems. Fitch believes that similarly, Computershare will provide HML with infrastructure and operational support. The rating agency said: “All servicers may find increasing their third-party business challenging. The UK is Europe's most competitive market and Homeloan Management Limited (the UK's largest third-party residential mortgage servicer by AUM) and Pepper (UK) (formerly Oakwood Global Finance) have consolidated their dominant positions. It is not clear that anticipated growth from new lenders, outsourcing, and non-conforming lending will materialise. Recent entrants to the lending market have kept servicing in house and concerns about the operational risks of servicer transfer have led to few securitised portfolios changing hands. If opportunities do not materialise, the financial and operational support new owners provide could reduce. This could be negative for servicer ratings.” Tesco is set to offer mortgages through intermediaries next year. Speaking to the Daily Telegraph, Tesco Bank chief executive Benny Higgins said: “We‟ve been [in the direct market] for over two years now, and we realised that while we‟re happy with how it‟s going, we are only serving a modest proportion of Tesco customers.” He added that offering home loans through intermediaries will enable the company to “considerably” expand its mortgage arm. Tesco Bank is currently developing the infrastructure required to sell through intermediaries. The first half of 2016 has been earmarked for the launch. Mr Higgins added: “Whilst it wasn‟t our intention at the very outset, it is clear to us that over half of Tesco customers are buying mortgages through brokers and that number is increasing under the new regulatory code.” Greece has been granted a four-month eurozone deal extension. The country had asked for a six-month extension, but had agreed the deal and to provide an initial reform measure list by February 23rd. Greece also pledged that it will honour all of its debts.
  9. 9. Top News Stories HSBC has reported a 17% fall in profits. The bank revealed in its 2014 financial results that profit before tax has declined 17% on 2013 to $18.7 billion (£12.1 billion). UK customer redress, settlements and fines played a part in the fall in profit. HSBC‟s group chief executive Stuart Gulliver commented: “2014 was a challenging year in which we continued to work hard to improve business performance while managing the impact of a higher operating cost base. Profits disappointed, although a tough fourth quarter masked some of the progress made over the preceding three quarters. “Many of the challenging aspects of the fourth quarter results were common to the industry as a whole. In spite of this, there were a number of encouraging signs, particularly in Commercial Banking, Payments and Cash Management and renminbi products and services. We were also able to continue to grow the dividend.” HSBC has been in the news recently for the Swiss accounts held by some of its customers. A former employee at the bank leaked information that showed how HSBC helped some clients avoid paying taxes between 2005 and 2007. HSBC has also confirmed that Mr Gulliver has a Swiss account, following a report by the Guardian that he holds £5 million in it. Legal representatives for the chief executive explained that as a Hong Kong resident, Mr Gulliver pays tax there and has “for a number of years” voluntarily declared his Swiss accounts to the tax authorities in the UK.” Standard Life continues its transformation into an asset management company. In its full-year results, Standard Life unveiled group operating profit before tax of £604 million, a 16% increase on 2013. Group assets under administration climbed from £214.7 billion in 2013 to £296.6 billion in 2014, in part boosted by Standard Life‟s push into the asset management arena. Its acquisition of Ignis Asset Management added £60.5 billion of assets to its operations. It purchased the firm from Phoenix Group Holdings for £390 million. David Nish, chief executive of Standard Life, commented: “We have made good strategic progress during the year with the acquisition of Ignis Asset Management and the sale of our Canadian operations, increasing focus on fee business and enabling a £1.75 billion return to shareholders. We are also well positioned to deal with the far-reaching reforms to the savings and retirement income rules in the UK and to support customers through these changes. Standard Life Investments has continued to perform strongly and expand internationally. "Although investment markets are unsettled and may affect the near-term pace of asset and revenue growth, we are very well placed for the future. We have an excellent track record of succeeding in evolving markets and have the products, experience and proven investment performance to help our customers and clients in all of our markets to save and invest, so that they can look forward to their financial futures with confidence.”