Oooooh, that explains it.
Normal Maps in UE4 use BC5 compression, which means that Blue channel is for all intents and purposes useless and nuked out. You can’t use it for anything really. Using a separate Heightmap is the way to go. You’re not really saving any memory because BC5 just uses extra bits for the R and G channels anyway.
For best results, TC_Grayscale or TC_DisplacementMap is best for Heightmaps since they’re purpose built for Heightmaps. Texture Compression really matters in UE4. It’s very commonly overlooked.