APRIL 2014

1. APRIL 2014 The Mortgage Market Review (MMR) came into effect on April 26th 50% of respondents to the HML MMR survey had identified gaps, but said they would be ready for April 26th. 8% of respondents claimed they would not be ready in time for the MMR deadline HML has been shortlisted for a European Outsourcing Association award

2. HML News HML’s MMR survey has revealed that 8% of respondents did not think they would be ready for the April 26th deadline. The anonymous survey found that 50% of respondents – the majority of which were lenders and third-party mortgage administrators – had identified gaps, but would be ready for the MMR. Over 40% of respondents believed the MMR would have the greatest impact upon change of processes across the business. Almost 25% said the potential for customer frustration was their biggest concern. In addition, a fifth of respondents believe the MMR is not a move in the right direction for the market.

3. HML News • HML has been shortlisted for a European Outsourcing Association (EOA) award. • We have been shortlisted in the European IT Outsourcing Project of the Year category for our work in assisting our Irish lenders in being ready for the Single Euro Payments Area (SEPA) regulation. • The SEPA Regulation 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 SEPA. As a European Union 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 1st2014. • HML exceeded the original SEPA deadline by three months and has met the new deadline eight months early • 2,209 transactions were carried out under the new system in February 2014 alone. This totals €1,590,101.90 across all of HML’s Irish clients and 37% of all cash collected on HML’s Irish portfolio • Meeting client SLAs means no unnecessary cost was incurred either by HML or its clients, and it also prevented customer distress from occurring by being asked to make their mortgage or arrears payments by another means Padraig Collery, projects manager at Start Mortgages, said: “HML worked extremely hard on this project and delivered a very high performance, not only ensuring that Start was ready well ahead of the SEPA deadline, but also in the partnership approach they took. They kept us involved and updated on progress at all times and the project relationship management I experienced means I’d have no hesitation with working with the HML project team on future business critical projects. “The project was launched almost a year ago and was one of the most critical and challenging projects undertaken between Start, HML and our third-party direct debit collections service provider. We had an issue at the final test which was resolved from an exchange of explanations and agreement on a plan to resolve the issue. I very much appreciate the openness in which HML managed the project. The project manager never hesitated in letting me know if there was a problem. This approach was central to the confidence we had in each other during the project and reflected best practice towards open and honest communications and relationship management.” Padraig Collery, Start Mortgages

4. HML News HML sponsored the Council of Mortgage Lender’s (CML) Annual Lunch 2014. Andy Wiggans, former specialist lending director at The Skipton Group, provided a welcome speech. “At last year’s lunch, we laid out a theme for the day of Transition, Change and Collaboration. There have been many examples of these themes over the past year, including the FCA’s finalised guidance regarding interest-only mortgages, growth in gross lending driven by the Funding for Lending Scheme and Help to Buy and the close work of the CML and FCA with the delivery of the MMR. We’ve also recently seen the output from the FCA’s thematic review on arrears and possessions.” He went on to discuss how 2014 appears to be a turning point for the UK’s mortgage market, with the CML forecasting that lending will reach £195 billion this year and the Help to Buy scheme impacting housing demand and sentiment. “In our first newsletter of the year, Paul Smee described 2014 as a year of challenge, and I’d certainly agree with him. But as a market, we need challenges to ensure we go the extra mile, whether that’s in dealing with new regulation, increased lending or ensuring the right outcomes for customers. “The affordability consequences of an interest rate rise are one of the challenges we believe lenders need to start preparing for as soon as possible.” Director-General of the CML Paul Smee also provided a fantastic speech. His point about customer reaction being a real unknown in the post-MMR world was certainly an important one. It follows the findings of our recent HML survey that showed almost 25% of respondents believe the greatest impact of the MMR will be customer frustration. Each guest received a truckle of Wensleydale cheese to celebrate HML’s Yorkshire roots and the Yorkshire Grand Depart of the Tour de France.

5. HML News Nigel Turner, chief commercial officer at HML, welcomes the positive announcements in the March Budget, but urges lenders to heed caution over potential increases in mortgage interest rates. Speaking to Mortgage Finance Gazette, he said it was great to see the positive sentiment off the back of the Budget. This included the extension of Help to Buy part one, the tax-free personal allowance increasing from £10,000 to £10,500 and the cash ISA allowance increasing to £15,000. However, Mr Turner added: “At HML we urge lenders to keep an eye on the risk of mortgage interest rate rises, or interest-rate susceptibility. While it is fantastic to see some encouraging steps forward off the back of the Budget surrounding Help to Buy, savings and pensions, there also needs to be focus on the issue of interest rate rises and lenders’ most vulnerable mortgage customers. “Interest-rate susceptibility has been a hot topic at HML for some time, especially as we are in the unique position of being the UK and Ireland’s largest third-party mortgage administration company. With £37 billion assets under management for dozens of clients, including building societies and major banks, we don’t just have a view of one mortgage portfolio, but several. This means we have seen how mortgage customers have been impacted over the years, from negative equity and repossessions to arrears and interest-only mortgages. “As well as our wide-ranging view of the mortgage market, we also have market-leading advanced analytics that enable us to identify the portfolio and individual customer credit risk from an increase in interest rates through analysis and stress testing. Combined with credit bureau and behavioural data and captured Potential Impairment Indicators, the information provides a robust picture of a mortgage customer and their account, including their future ability to deal with payment shocks. “The results allow us to build a tailored customer contact strategy that includes personalised letters that lay out how much a mortgage would cost each month under various interest rate increases. However, during our interest-only customer contact campaigns, we have seen how effective outbound telephone calls are also in raising awareness and resulting in customer action, and the most vulnerable mortgage customers should also be telephoned when lenders are highlighting interest-rate susceptibility. “It is important to put practical outcomes in place for customers, and HML has developed a range of solutions, including personal budget advice, benefits assessment, personal money reviews and the ability to make overpayments. “Of course, it is not just current customers that lenders need to focus on. With the extension of the Help to Buy set to help thousands of people on to the housing lender, lenders should not rely on the MMR’s stress testing and income and expenditure forms to ensure loan affordability. Major customer life events and other unexpected scenarios can still occur, and it is imperative that lenders plan for these now and ensure they have the culture, processes and strategies in place to deal with these to ensure the best outcomes for customers.”

6. Industry Statistics Consumer Prices Index BoE Base Rate Unemployment Rate (ONS) Halifax House Price Index Gross Mortgage Lending (CML) Home Repossessions (CML) Consumer Price Index BoE Base Rate Unemployment Rate (ONS) Halifax House Price Index Gross Mortgage Lending (CML) Home Repossessions (CML) MARCH ‘14 1.6% APRIL ‘14 0.5% DEC-FEB ‘13/’14 6.9% MARCH ‘14 Down 1.1% on FEB Average price £178,249 MARCH ‘14 Up 4% on FEB £15.4 billion 2013 TOTAL 28,900 FEB ‘14 1.7% MARCH ‘14 0.5% NOV-JAN ‘13/‘14 7.2% FEB ‘14 Up 2.4% on JAN Average price £179,872 FEB ‘14 Down 6% on JAN £15.2 billion 2013 TOTAL 28,900 JAN ‘14 1.9% FEB ‘14 0.5% OCT-DEC ‘13 7.2% JAN ‘14 Up 1.1% on DEC Average price £175,546 JAN ‘14 Down 8% on DEC £15.5 billion** JULY-SEP ‘13 7,200 FEB ‘14 1.7% MARCH ‘14 0.5% NOV-JAN ’13/’14 7.2% FEB ‘14 Up 2.4% on JAN Average price £179,872 FEB‘14 Down 6% on JAN** £15.2 billion JULY-SEP ‘13 7,200 DEC ‘13 2% JAN ‘14 0.5% SEP-NOV ‘13 7.1% DEC ‘13 Down 0.6% on NOV Average price £173,467 DEC ‘13 The same on NOV £17 billion APR-JUNE ‘13 7,700 JAN ‘14 1.9% FEB ‘14 0.5% OCT-DEC ‘13 7.2% JAN ‘14 Up 1.1% on DEC Average price £175,546 JAN ‘14 Down 8% on DEC £15.5 billion APR-JUNE ‘13 7,700 *Date reflects what the statistic was during that period, rather than when the statistic was published ** January figure has since been revised upwards to £16.1 billion

7. Industry Statistics Consumer Price Index The CPI declined by0.1% on February to 1.6%. The largest contribution to the CPI’s decline came from lower motor fuel costs, although this was partially offset by upward pressures from the alcohol and tobacco, and restaurants and hotels 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. Unemployment Rate The unemployment rate for December 2013 to February 2014 stood at 6.9%, representing 2.24 million people. This is a five-year low. The claimant count also dropped to 1.14 million, the lowest number since November 2008. The average weekly wage also increased by 1.7% when compared to the same period in 2013, with the typical weekly pay packet before taxes and other deductions £479. Halifax House Price Index The average price of a home declined by 1.1% between February and March to reach £178,249. However, typical residential property prices in the three months to March were 2.3% higher than Q4 2013 and 8.7% higher than the same quarter last year. Mortgages director at Halifax Stephen Noakes said:“Housing demand continues to be supported by an improving economic outlook, growth in employment, rising consumer confidence and low interest rates. “The recent strengthening in house price is increasing the amount of equity that many homeowners have in their home. This will potentially encourage and enable more owners to put their property on the market for sale over the coming year, therefore boosting supply and easing pressure on prices." Gross mortgage lending Gross mortgage lending stood at £15.4 billion in March, according to the Council of Mortgage Lenders (CML). This represents a 4% lift on February and is 33% higher than the £11.6 billion noted for March 2013. For Q1 2014, gross mortgage lending represented £46.3 billion, a 37% increase from the same quarter in 2013 but a 10% decline from Q4 of last year. Bob Pannell, chief economist at the CML, commented: "Alongside benign developments in the wider UK economy and the labour market, housing market sentiment continues to strengthen.  "There are currently no signs of significant market disruption, arising from the imminent application of new lending rules associated with the Mortgage Market Review. While some mortgage lending indicators have eased back gently, this is from the very high levels of recent months. "The Financial Policy Committee continues to be vigilant to housing market developments, and to remind the market of its ability to act before problems to financial stability set in."

8. Top News Stories • Vince Cable has warned that property prices are becoming unaffordable for middle-income earners in Britain. • The business secretary made the comments to The Independent. • Mr Cable commented:“The fundamental problem is a chronic imbalance between supply and demand. A recovering mortgage market is just fuelling demand again. • “A family on average income is nowhere near able to afford a house at the average price. Property has become much more unaffordable for people on middle incomes.” • He added that the average property price is around 5.5 times average earnings. In the mid-1990s, this stood at three times. • The Royal Bank of Scotland (RBS) has announced 44 branch closures, 14 of which have been noted as the last branches in their locations. • In its 2010 customer charter, the bank said it would not close branches that were the last ones in their towns. • A spokesperson for RBS said: “Banking has significantly changed over the past few years, with customers choosing to bank where and when is convenient for them. • The Bank of England’s director of financial stability has warned about asset management risks. • Andrew Haldane has said that asset managers could be on the same level as banks when it comes to the risk they pose to the world’s financial system. • Mr Haldane said: “A key question, here, is how household behaviour is likely to respond to bearing these additional risks, especially in situations of stress. Will investors ride them out or run to the hills, stick or twist? It is impossible to know for certain. But experience during the crisis is revealing.” • He pointed out that the top ten asset managers • account for just less than 30% of the sector. While asset managers are not immune to insolvency, Mr Haldane did describe them as being “insolvency-remote”, due to the fact that as an agency function, they do not bear liquidity, market or credit risk. • The Co-operative Bank made a loss of £1.3 billion in 2013. • The bank revealed it did not expect to make a profit this year nor in 2015. Chief executive Niall Booker commented: “We appreciate that customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk.

9. Top News Stories • “There are still major hurdles ahead to overcome. The level of change required in improvement in processes, systems and culture is significant. We are determined to rebuild trust in the bank after the events of last year and reward the loyalty our customers and shareholders have shown us.” • KPMG also placed a “going concern" warning on the bank to highlight how essential it was for it to raise extra funds. • Mr Booker added that he wanted to create a smaller, more efficient bank that is focused on small and medium-sized businesses and individual customers, backed by a quality service. • The UK’s economy grew by 0.8% during Q1 2014. • The Office for National Statistics revealed that the largest contribution to this growth came from the services sector, which enjoyed expansion of 0.9%. • The economy grew by 0.7% during the final quarter of 2013. • Chancellor of the Exchequer George Osborne said it showed that Britain was “coming back”, but the growth should not be taken for granted. • He added: “We have to carry on working through our long-term economic plan. For the first time in a decade all three main sectors of the economy - manufacturing, services and construction - have grown by at least 3% over the last year.” • For the first time since January 2009, there has been a positive annual growth in personal loans and overdrafts, according to the British Bankers’ Association (BBA). • In March 2014, credit card spending rose by 6.3% to reach £8.2 billion, while net borrowing on overdrafts and personal loans increased by 0.5%. The association said an improving economy and greater consumer confidence contributed to this growth. • Chief economist at BBA Richard Woolhouse said: “This is against a backdrop of continued buoyancy in the mortgage market, although growth rates have slowed slightly in recent months.” • The growth of lending to UK businesses remained in negative territory in the three months to February, the Bank of England has revealed. • Lending to British businesses declined by £500 million, although the rate of decline has slowed from the preceding three months, when a fall of £3.3 billion was noted.