UK Mortgages 2009

UK Mortgages 2009 published by Datamonitor in October, 2009. This report consists of 162 pages and the price starts from US $ 4495.

Introduction

Abstract

Introduction

The UK Mortgage Market has seen unprecedented change in the past 18 months, from collapsed wholesale funding markets, to the nationalization of some of the country' s biggest lenders. With many homeowners now struggling to keep up repayments, house prices at record lows and lending criteria still very strict, the market is set to tread a long and winding path before it returns to normal.

Scope of this research

• Combines all of the mortgage research conducted in 2009 into one comprehensive document.
• Provides market sizing data, market shares, key trends, in-depth analysis of first-time buyer and remortgaging sectors and consumer trends.
• Includes detailed qualitative opinion and quantitative forecasts of the UK mortgage market for the next five years.

Research and analysis highlights

Datamonitor predicts that total gross lending in 2009 will reach £140 billion, a 46% decline as compared to the £261 billion worth of lending seen in 2008.

In February 2008, there were over 1,000 available products with a maximum LTV of 90% or more, and 500 products at 95% LTV or more. However, 12 months later, this had dropped to just 100 products and 10 products, respectively.

The remortgaging market has seen a large contraction so far in 2009 and this is expected to continue as consumers are wary of remortgaging and banks remain cautious over lending. Datamonitor forecasts that the remortgaging market will reach a nadir of £37.5m in terms of gross advances in 2010 before slowly recovering in 2011.

Key reasons to purchase this research

• Plan your future strategy with confidence using Datamonitor' s scenario-based forecasts of UK residential mortgage gross advances to 2013.
• Understand the challenges the mortgage industry is facing.
• In-depth analysis of how lenders are coping with a number of issues allowing you to reassess your strategy.

Table of Contents

OVERVIEW

• Catalyst
• Summary

A REVIEW OF THE UK MORTGAGE MARKET IN 2008 AND 2009

• 2008 saw unprecedented turmoil in the UK mortgage market
  • (Untitled sub-section)
  • The supply of mortgage finance was affected by a dramatic worsening of credit conditions

• To date, 2009 has been marked by the worst recession in decades
  • (Untitled sub-section)

• Key trends and factors affecting the market
  • Falls in house prices have revived negative equity and aggravated the constriction of credit
  • Sentiment on house prices has become more optimistic in the third quarter of 2009
  • First time buyers have faced particular difficulties
  • The government and the industry have taken steps to help first time buyers
  • Arrears and repossessions are on the rise

• Forecasts and figures
  • Historically low base rates have had a major impact on consumer and lender behavior
  • In the light of current volatility, Datamonitor has produced two alternative scenarios

COMPETITIVE DYNAMICS IN THE UK MORTGAGE MARKET

• Lehman Brothers' collapse led to the mortgage market being marked by consolidation and government support
  • Consolidation and government intervention mark the 2008 mortgage market
  • Lloyds TSB merged with HBOS and the Lloyds Banking Group was born
  • Bradford & Bingley was nationalized, with Abbey buying its savings branch
  • The Britannia and Co-operative Financial Services merger partnered Britannia' s mortgage product strength with the Co-op' s extensive retail banking portfolio
  • The mortgage market looks very different from in 2007

• Most mortgage providers saw a fall in gross advances, while balances outstanding saw moderate growth
  • Only HSBC saw an increase in advances among the top 10 mortgage providers
  • Northern Rock dropped out of the top 10 mortgage providers in terms of gross lending
  • Customer retention rather than acquisition is the current focus
  • Balances outstanding increased in 2008, but at a slower rate than in previous years

• The UK mortgage market is much smaller, but competition is beginning to heat up among the major players
  • HSBC' s RateMatcher, combined with other attractive offerings, strengthens its acquisitions stance
  • Woolwich responded to HSBC' s pricing challenge with its own offering
  • Nationwide Building Society came to the aid of smaller building societies but more may struggle in the future

• Monetary policy has been critical for preventing a complete credit drought
  • Base rates have been at their 300 year low for the last six months
  • The major lenders have decreased the rates on their two-year fixed rate mortgages, but the maximum LTVs have decreased

• The future of the UK mortgage market looks eventful
  • Smaller players could see a return but they are likely to remain hamstrung by their access to funds
  • New players are emerging at the edges of the market, but the scale of their impact is still hard to ascertain
  • Interest rate increases could ignite the mortgage market

THE IMPACT OF INCREASED ARREARS ON UK MORTGAGE PROVIDERS

• As the level of arrears increases, lenders need to find ways to help consumers
  • Around 1.88% of mortgages were in arrears at the end of 2008
  • The loss of one' s job or the failure of one' s business are the main drivers of arrears
  • Datamonitor' s Megatrends framework can provide more insight into why consumers fall into arrears
  • Communication with borrowers is seen as a vital tool against increased arrears
  • Special servicers help lenders to manage arrears more efficiently
  • Lenders have a variety of measures in place to help borrowers who are in arrears

• Repossession is seen as a last resort as it can be costly for both parties
  • Repossession levels were lower than anticipated in 2008
  • A few lenders have introduced a controversial six-month delay on repossession orders
  • Most lenders follow a standard process when taking possession of a property
  • Some providers have noticed an increase in voluntary abandonment cases

• Various regulatory measures are being introduced to reduce arrears and repossessions
  • The Homeowner Mortgage Support Scheme has been set up to help defer repayments
  • The Income Support for Mortgage Interest scheme has had an overhaul to make it more effective
  • The mortgage rescue scheme allows housing associations to rent property back
  • The Pre-action Protocol is a government initiative to further postpone repossessions
  • There has been a call for laws to be relaxed that allow those in arrears more time to pay off the loan
  • The cut in stamp duty may have caused more problems than it has solved

AN ANALYSIS OF FIRST TIME BUYERS IN THE UK MORTGAGE MARKET

• First-time buyers are the casualties of the house price boom
  • House prices grew by more than 230% over the period 1996 - 2007
  • First-time buyers have found their ability to buy a property significantly reduced in a soaring house price environment
  • FTBs' participation in the UK housing market has dropped significantly
  • The importance of first-time buyers in the UK mortgage market must not be underestimated

• Buying a property remains problematic for first-time buyers despite house prices falling in 2008
  • Properties still remain unaffordable for FTBs in the current market conditions
  • Many potential first-time buyers have little hope of ever buying a property
  • Homeownership remains a major goal for the UK population

• First-time buyers' options are limited in the current difficult market climate
  • Unsurprisingly, the majority of would-be FTBs surveyed consider mortgage products requiring a low or no deposit as being of the most help to buy their first home
  • A handful of lenders, such as Halifax and Abbey, have introduced savings-related incentives for FTBs
  • The government has improved its shared equity schemes aimed at FTBs in 2008

CONSUMER TRENDS IN THE UK MORTGAGE MARKET

• Understanding the Megatrends framework is vital for any mortgage provider
  • A Megatrend framework is vital for lenders during the current climate
  • Greater customer understanding can help to overcome the obstacles encountered when targeting and communicating with customers

• Consumers are no longer focusing solely on price when taking out a mortgage
  • There are four consumer Megatrends that have become apparent throughout the downturn
  • Consumers are increasingly seeking out advice as they no longer feel confident in making their own financial decisions
  • Consumers tend to follow the masses when making large investment choices
  • But borrowers also want mortgage products that can suit their individual circumstances
  • Customers need mortgage lenders to be authentic and honest throughout the recession
  • Mortgage lenders need to be more innovative in their product offering to appeal to these consumer trends
  • Examples from abroad have highlighted how UK lenders can improve their messages

THE FUTURE OF REMORTGAGING

• The level of remortgaging in the market has declined since its peak in 2007
  • Remortgaging gross advances have dropped less rapidly than house purchase advances
  • The decline in gross lending came as a result of a decline in all forms of lending
  • The buy-to-let market saw huge falls in gross lending between Q3 2007 and Q2 2009

• Competition among lenders is low and is likely to remain so in the near future
  • The level of competition in the market is low but the re-entry of Northern Rock has boosted the market
  • The big lenders have been the most successful at attracting new remortgage business
  • Prior to the crunch lenders priced remortgaging deals to make minimal margins
  • A dearth of remortgaging activity could hamper a recovery
  • Brokers are traditionally strong in the remortgaging market
  • Lenders in difficulty are paying borrowers to take their business elsewhere

• Innovation in remortgaging has been minimal since the credit crunch began
  • Remortgage calculators are available on some websites
  • HSBC has reintroduced its rate matcher deal to boost remortgaging
  • Lenders have been looking to attract more borrowers onto offset mortgages
  • Lenders are offering four-year fixed terms
  • Banks are taking steps to reduce the costs faced by borrowers when remortgaging
  • Innovation is likely to return once the market has recovered sufficiently

• Consumers are weighing up their options regarding remortgaging
  • According to some sources the number of consumers seeking remortgage advice has risen
  • Over the last 12 months more borrowers switched than reverted to their standard variable rate
  • The share of new mortgages on new property is generally lower the more recently the mortgage was arranged
  • With falling house prices equity release has fallen
  • Consumers are substituting savings for paying off debts

• Datamonitor forecasts that the market for remortgaging will recover during 2011
  • Recovery will begin in 2011
  • There is unlikely to be a movement away from remortgaging products in the future

APPENDIX

• Supplementary data
  • A Review of the UK Mortgage Market in 2008 and 2009
  • Competitive Dynamics in the UK Mortgage Market
  • The Impact of Increased Arrears in the UK Mortgage Market
  • An Analysis of First Time Buyers in the UK Mortgage Market
  • The Future of Remortgaging

• Definitions
  • Balances outstanding
  • Bank of England base rate
  • Buy-to-let
  • CAGR
  • Equity
  • Fixed rate mortgage
  • Gross advances
  • LIBOR
  • Loan-to-value
  • Mortgage intermediary
  • Non-standard and sub-prime
  • Remortgaging
  • Sub-prime
  • Title insurance
  • Tracker mortgage
  • Variable mortgage

• Methodology
• Forecasting methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Forecast arrears and repossessions under the Datamonitor view, 2009 - 2013
• Table: Forecast gross advances under the Datamonitor view, 2009 - 2013
• Table: Forecast gross advances under the pessimistic view, 2009 - 2013
• Table: Forecast gross advances under the optimistic view, 2009 - 2013
• Table: Two-year fixed rate products by mortgage lenders
• Table: Datamonitor forecast of remortgaging and the total mortgage market, 2007 - 13f
• Table: Quarterly changes in UK GDP (% change compared to previous quarter)
• Table: Number of approvals for house purchase
• Table: Bank of England base rate (%)
• Table: Quarterly changes in credit availability and scoring criteria
• Table: Annual gross lending (£m)
• Table: Annual gross lending by product line (£m)
• Table: Number and value of all mortgage approvals, by month
• Table: Monthly gross lending (£m)
• Table: Factors affecting availability of secured credit
• Table: Nationwide and Halifax prices indices, monthly and annual changes
• Table: Impact of house price expectations on availability of credit
• Table: Consumer confidence in strength of housing market compared to a year ago
• Table: Consumer expectations of strength of housing market over next 12 months
• Table: Net balance of lenders reporting increase in availability of high LTV mortgages
• Table: Average rates for two year fixed-rate mortgages of 75% and 90%/95% LTV
• Table: Consumer attitudes on perceived difficulties in raising mortgage finance
• Table: First time buyer loans
• Table: Annual arrears and repossessions
• Table: Level of consumer concern about ability to meet repayments
• Table: Type of mortgage
• Table: Base rates, LIBOR, swap rates, average mortgage rates from 2007 to 2009
• Table: Net balance of lender reporting increase in spreads for different categories of mortgage
• Table: Monthly mortgage approvals
• Table: Comparison of mortgage rates, Libor and two-year swap rates. September 2008 - September 2009
• Table: Top 15 lenders by total mortgage lending, market shares for 2007 and 2008
• Table: Top 15 lenders by total mortgages balances outstanding, market shares for 2007 and 2008
• Table: % of all mortgages at least three months in arrears
• Table: % of all mortgages taken into possession during each half yearly period
• Table: FTBs' house price to earnings ratio and index of mortgage repayments as a % of take home pay, 1996 - 2007
• Table: Number of loans accounting for FTBs, 1988 - 2007
• Table: How long do you think it will be until you buy your first home?
• Table: What is stopping you from purchasing property?
• Table: Why are you looking to purchase a property?
• Table: In order to own your home what would you expect to sacrifice?
• Table: How are you planning to finance the deposit to buy your property?
• Table: How difficult do you think it would be for you to service a mortgage for the next five years?
• Table: Which of the following would help you most to buy your first property?
• Table: Annual gross advances for house purchase and remortgaging, 2000 - 08
• Table: Quarterly gross advances split by type, Q1 2005 - Q2 2009
• Table: Buy-to-let quarterly gross advances, Q3 2006 - Q2 2009
• Table: Remortgaging activity by brand of lender
• Table: Average monthly rate for different types of mortgage product, January 2007 - June 2009
• Table: Number of different types of loan advanced on a monthly basis, January 2007 - June 2009
• Table: Action that best describes situation over the last 12 months
• Table: The impact of the time when the mortgage was arranged on the type of mortgage activity
• Table: Likelihood of remortgaging over the next six months

FIGURES

• Figure: UK GDP started to decline in the second quarter of 2008
• Figure: Approvals for house purchase fell sharply from mid-2007 to the end of 2008
• Figure: The Bank of England base rate remained at relatively high levels until the final quarter of 2008
• Figure: Severe tightening of mortgage credit availability and lending criteria throughout 2008
• Figure: After strong growth in 2006 - 07, gross lending fell sharply in 2008
• Figure: Lending for house purchases has been worst affected by the downturn
• Figure: Mortgage approvals are on a downward trend, in terms of both value and time
• Figure: Gross lending remains very subdued in first half of 2009
• Figure: Factors affecting availability of secured credit started to recover in the second quarter of 2009
• Figure: House price indices show negative annual growth from early 2008 onwards
• Figure: Expectations of house price falls have contributed to a reduction in secured credit availability
• Figure: Consumer confidence in housing market has been badly affected
• Figure: Consumer expectations for housing market over the next 12 months are conservative
• Figure: The number of 75%+ LTV mortgages fell massively in the wake of the credit crunch
• Figure: High-LTV mortgages have become relatively more costly than low-LTV mortgages
• Figure: A sizeable proportion of prospective buyers have experienced, or anticipate experiencing, difficulties in obtaining mortgages
• Figure: The number and value of FTB loans have been on a downward trend
• Figure: There was a marked increase in mortgage arrears in 2008
• Figure: Arrears and repossessions will peak in 2010 before falling back
• Figure: The credit crunch has not affected consumers' confidence in ability to repay their mortgages
• Figure: Tracker mortgages rose in popularity in 2008 and 2009
• Figure: Steep rise in differential between mortgage rates and LIBOR, swap rates
• Figure: Secured lending spreads have increased across all categories of loan
• Figure: Approvals for remortgaging fell sharply in the wake of base rate cuts in late 2008
• Figure: The Datamonitor view is that gross lending will recover gradually to a level of £220 billion in 2013
• Figure: The pessimistic forecast sees gross lending rising to only £185 billion by 2013
• Figure: In the optimistic scenario, gross lending rises to £245 billion in 2013, just a short way off the 2008 total
• Figure: Gross mortgage advances fell by 30%, with only HSBC and the Bank of Ireland seeing increases
• Figure: Only Bradford & Bingley saw a decline in market share among the top 10 lenders
• Figure: Most large lenders increased their balances outstanding, with the exception of Northern Rock
• Figure: Mortgage rates have fallen but have failed to keep up with base rate cuts
• Figure: The percentage of mortgages in arrears grew significantly in Q4 2008
• Figure: The FSA' s Money made clear guides offer clear advice on all mortgage-related issues
• Figure: Nationwide' s website provides a convenient source of information on useful debt advice bodies
• Figure: Lloyds TSB stresses the importance of action on the part of those facing financial difficulty
• Figure: The percentage of properties taken into possession in H1 2008 was 0.16%
• Figure: The average UK house price has more than trebled during the period 1996 - 2007
• Figure: FTBs' affordability has reduced considerably as both the ratio of house price to earnings and mortgage payments as a % of take home pay have risen sharply in the last decade
• Figure: Loans advanced to FTBs accounted for only 35.2% of total loans for house purchase in 2007
• Figure: More than a third of the respondents cannot imagine of ever buying a property, August 2008
• Figure: More than 60% of would-be FTBs interviewed mentioned the fact that property is too expensive as a reason for stopping them from buying a house, August 2008
• Figure: 48.4% stated ‘to get on the property ladder' as a reason for looking to purchase a property, August 2008
• Figure: An overwhelming majority of the surveyed participants would make sacrifices in order to possess their own home, August 2008
• Figure: Prospective buyers are planning to fund their deposits mostly out of their personal savings, August 2008
• Figure: 65.4% of would-be FTBs believe it would be difficult for them to service a mortgage for the next five years, August 2008
• Figure: 60.6% of the survey participants stated ‘low or no deposit' products as being of the most help to buy their first property, August 2008
• Figure: A financial services company can pitch its level of customer understanding at various stages depending on the company' s sophistication
• Figure: Consumers are most likely to consider major mortgage players such as HBOS and Abbey when taking out a new mortgage, 2008
• Figure: The average LTV across all products has fallen from 85.2% to 78.5%, 2007 - 08
• Figure: Lloyds TSB' s 2012 mortgage appeals to a borrower who supports the Great Britain Olympic team, 2009
• Figure: Remortgaging gross advances saw a moderate fall between 2007 and 2008
• Figure: The overall market peaked in Q3 2007 before falling away, remortgaging fell quickly from Q3 2008
• Figure: Buy-to-let remortgage gross advances fell by 87% between Q3 2007 and Q2 2009
• Figure: Barclays/Woolwich has been the most successful at attracting new remortgage business
• Figure: The average standard variable rate has been lower than the average fixed rate since November 2008
• Figure: The majority of borrowers are still taking out fixed-rate loans
• Figure: Remortgage calculators facilitate the complex calculations involved in remortgaging
• Figure: Woolwich outlines the differences between a normal mortgage and an offset one
• Figure: Over the last 12 months more borrowers remortgaged than reverted onto their lender' s SVR
• Figure: The share of remortgaging as a percentage of new mortgage activity has fallen in the last six months
• Figure: Less than one fifth of respondents are likely to remortgage during the next six months
• Figure: The total mortgage market will recover sooner than the remortgaging market

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