UK Right to Buy Mortgages 2005

This publication has been discontinued on July 19, 2011.

Introduction

Overview

Introduction

The Right to buy scheme is still very much alive. ｣2.6 billion worth of new mortgage lending was advanced in 2003/2004. This niche sector continues to produce stable business and, yet, it continues to single itself out by the lack of dynamism shown by many lenders. What does the future hold for this niche mortgage segment? This briefing provides the answer.

Scope

• Analyse trends in Right to buy (RTB) sales split by: RTB under local authorities, RTB under Registered Social Landlords (RSLs) & Preserved RTB (RSLs).
• Sizes the Right to buy mortgage market. Gross advances are split by RTB under local authorities, RTB under RSLs and Preserved RTB.
• Data relates to England and, where available, Great Britain.
• Provides a five-year forecast for RTB sales and RTB mortgage advances.

Report Highlights

Gross advances for Preserved Right to buy grew at a quicker pace as the number of Preserved RTB sales continued its progression. Indeed, this product line reached ｣360.6 million in 2003/2004 representing an increase of ｣137.1 million over the previous year.

Many niche mortgage sectors have experienced major boosts due to the competitiveness displayed by players in the aim of increasing market share. Yet, interviews conducted in the course of this report reveal that players are relatively passive in the Right to buy mortgage sector.

Increased consumer awareness about the possibility of taking a non-standard Right to buy mortgage and the fact that the current high level of average consumer debt implies a higher risk of eligible Right to buy households ending up with a less than perfect credit story will impact positively on business generated from the non-standard segment.

Reasons to Purchase

• Gives you a competitive edge by providing you with a thorough analysis of the UK Right to buy mortgage market.
• Learn whether the UK Right to buy mortgage market is a sector worth competing in.
• Draw on Datamonitors five-year scenario-based forecasts to plan your future strategy with confidence.

TABLE OF CONTENTS

ABOUT DATAMONITOR

CHAPTER 1 INTRODUCTION

• Scope and definitions
• Scope
• Definition of Right to buy
• The Right to buy purchase process explained
• Right to buy mortgages explained
• However, there is an extra step for the mortgage procedures on the lenders side
• Who is the target reader?
• How to use this briefing?

CHAPTER 2 THE RIGHT TO BUY SCHEME IN CONTEXT

• Right to buy was introduced in 1980 to boost home ownership
• Right to buy generally applies to secure tenants
• Assured tenants of RSLs who previously held secure tenancies with local authorities have the Preserved Right to buy
• Under the Right to buy scheme, the tenant is allowed to buy their property at less than market value
• Discounts available vary by region
• The government has introduced various amendments to discount ceilings throughout the years
• In addition to boosting home ownership, Right to buy fulfills other social and economic aims
• However, the scheme also has a number of other social and economic aims
• Right to buy remains a popular measure among eligible tenants but new planned HomeBuy schemes will provide competition to the scheme
• Schemes offering discounts and grants
• Schemes offering equity loans
• Schemes offering shared ownership
• These schemes are limited by their exclusions
• New HomeBuy schemes position themselves as serious alternatives to the Right to buy scheme
• Since its introduction, Right to buy has helped more than 2.2 million public sector tenants in Great Britain into homeownership
• However, the Right to buy scheme has attracted criticisms
• Alleged exploitation of the scheme by companies and individuals has tainted the Right to buy market
• Some Right to buy service companies were found to apply hard sales techniques to stimulate demand
• Right to buy incentive companies were found to exploit a loophole in the Right to buy scheme
• Some tenants were exercising their Right to buy in regeneration areas
• Right to buy sales have led to a shortage in affordable rented properties
• However, the lack of investment in new builds has also contributed to this situation
• The government has introduced various measures to clamp down on Right to buy profiteering
• A less attractive Right to buy to discourage abuse
• The new extended qualifying period is not expected to affect RTB sales in the short-term
• Conclusions

CHAPTER 3 SIZING THE RIGHT TO BUY MORTGAGE MARKET

• The Right to buy mortgage market was worth ｣2.6 billion in gross advances in 2003/2004
• Methodology used in sizing the Right to buy mortgage market
• Step one: Right to buy sales by local authorities and registered social landlords
• Step two: capital receipts per property sale
• Step 3: total capital receipts from Right to buy sales in England
• Step four: the size of the Right to buy mortgage market
• Right to buy gross advances in England rose by 24.9 per cent on a yearly average over the period 1999/2000 to 2003/2004
• Gross advances for Preserved Right to buy are the fastest growing product line
• Advances for properties sold under Right to buy by local authorities in Great Britain reached ｣2.8 billion in 2003/2004
• In terms of market share of the total secured lending market, the Right to buy mortgage market has barely progressed over the previous years
• Sound macroeconomic factors have contributed to the stable growth of the market
• Sound macro-economic conditions have laid the foundation for growth in the total secured lending market including the Right to buy mortgage market
• Strong growth in GDP contributed to stable economic conditions in 2004
• Interest rates are still relatively low despite witnessing four successive increases of 0.25 percentage point in 2004
• The Right to buy mortgage market is likely to have been more affected by the successive increases in base rate of 2004 than the mainstream mortgage market
• House prices have soared in recent years thus boosting the UK mortgage market
• However, factors specific to the Right to buy mortgage market have also played a role in the sustained growth
• The downward review of discounts available on Right to buy in hot spots in 2003 meant that the selling price per property has increased
• Fear about the Right to buy scheme being scrapped also inflated the number of sales in 2002/2003 and 2003/2004
• RTB sales have probably fallen back to their average normal level for 2004/2005
• Remortgaging, although much less significant than in the mainstream market, contributed for around 20 per cent of gross advances in 2004
• Title insurance will boost remortgaging in the future
• Title insurance has the potential to impact positively on the Right to buy mortgage market by adding security to securitization transactions
• Conclusions

CHAPTER 4 THE LANDSCAPE OF THE RIGHT TO BUY MORTGAGE MARKET

• The structure of the Right to buy mortgage market is characterized by a wide array of lenders and brokers
• There are two major types of players in the Right to buy mortgage market
• Lenders in the Right to buy mortgage market are not particularly aggressive
• All mainstream mortgage lenders among the top 15 offer mortgages on Right to buy although they do not advertise the product
• The majority of the non-standard mortgages players have a presence in the Right to buy mortgage market
• Despite the lack of aggression shown by Right to buy lenders, non-standard players appear to have a stronger image than mainstream players in this market
• 52 per cent of households who bought their present accomodation as sitting tenants under the Right to buy scheme were receiving state benefits
• In addition, interviews carried out among players reveal that new mortgage lending under the Right to buy scheme is on the rise
• Datamonitor estimates that 45 per cent of gross advances realized under the Right to buy scheme in 2003/04 accounted for the non-standard segment
• A number of reasons can explain the lack of dynamism shown by Right to buy lenders
• The fact that the market is scattered means that each player owns a very small share of the Right to buy mortgage market
• The limited potential of the Right to buy mortgage market has dampened competitiveness
• Other niche mortgage markets are seen as more profitable
• Should lenders concentrate more on Right to buy?
• Similar to many niche mortgage markets, brokers play a major role in the Right to buy sector
• Brokers are an important chain in the distribution of Right to buy mortgages given the specific needs of Right to buy customers
• A few factors explain the high concentration of brokers in the Right to buy mortgage market
• Brokers present in the Right to buy mortgage market are generally those who operate in the non-standard market
• In addition, there are a certain number of small scale bespoke Right to buy mortgage brokers
• Hundreds of Right to buy service companies operate across the country
• Conclusions

CHAPTER 5 FORECASTING THE RIGHT TO BUY MORTGAGE MARKET

• Datamonitors forecasting model revisits the factors which have impacted the Right to buy mortgage market and assesses their importance in the future
• Macroeconomic factors and factors specific to the Right to buy mortgage market are included in the forecasting model
• Various assumptions are built into Datamonitors Forecasting model
• The Right to buy mortgage market in England continues to grow but at a much slower pace
• Gross advances in the Right to buy mortgage sector in England will amount to ｣2.7 billion in 2008/2009
• Preserved Right to buy will drive the Right to buy mortgage market forward
• Market share of Right to buy mortgage advances within the total secured lending market will remain marginal
• Mortgage advances in Great Britain for Right to buy under local authorities will fall to ｣2.3 billion in 2004/05 before reaching ｣2.5 billion in 2008/09
• Despite the number of RTB sales falling, gross advances will rise at an annual average rate of 2.3 per cent
• Conclusions

CHAPTER 6 APPENDIX

• Supplementary data
• Graphics relating to Chapter 2: The Right to Buy Scheme in Context
• Graphics relating to Chapter 3: Sizing the Right to Buy Mortgage Market
• Definitions
• AAGR
• Assured tenant
• Bank of England base rate
• Buy-to-let
• CAGR
• Deed of postponement
• Gross advances
• Loan-to-value (LTV)
• LA
• Non-standard customer
• Preserved Right to Buy
• Remortgaging
• Right to buy (RTB)
• RSL
• Secure tenant
• Self-certification mortgage
• Title insurance
• Research methodology
• References
• Relevant readings
• UK Mortgage Market Map
• Key Features
• For futher information
• Current reports
• Future Datamonitor publications
• Relevant links
• Datamonitors custom research capabilities
• SPP writing team
• How to contact experts in your industry
• List of Tables
• Table 1: Maximum discounts available for tenants purchasing houses and flats or maisonettes through Right to buy in England and Wales, July 2005
• Table 2: Maximum discounts available under the Right to buy scheme by region, July 2005
• Table 3: The changing Right to buy discount regime, 1980 to 2005
• Table 4: Number of Right to buy sales in England split by tenant, 1999/2000 to 2003/2004
• Table 5: Number of Right to buy sales in Great Britain under local authorities, 1999/2000 to 2003/2004
• Table 6: Average capital receipts per social housing sale by local authorities, 1999/2000-2003/2004
• Table 7: Capital receipts received by local authorities from Right to buy sales, 1999/2000-2003/2004
• Table 8: RTB gross advances split by tenant, 1999/00 - 2003/0004
• Table 9: Market share of Right to buy within the total secured lending market, 1999/2000 to 2003/2004
• Table 10: Top 15 largest mortgage lenders by balances outstanding position on Right to buy mortgage, July 2005
• Table 11: Non-standard lenders active in the Right to buy mortgage market, July 2005
• Table 12: Examples of brokers operating in the Right to buy mortgage market, July 2005
• Table 13: Examples of bespoke brokers in the Right to buy mortgage market, July 2005
• Table 14: Market drivers for the Right to buy mortgage market, 1999/00 - 2008-2009f
• Table 15: Datamonitors forecast for the Right to buy mortgage market in England, split by tenant, 2004/05-2008/09f
• Table 16: Datamonitors forecast for the number of Right to buy sales in England, split by tenant, 2004/05-2008/09
• Table 17: Forecasted market share of Right to buy mortgage advances within the total secured lending market, 2004/05 to 2008/09
• Table 18: Datamonitors forecasts for Right to buy under local authorities in Great Britain, 2003/04 to 2008/09
• Table 19: Right to buy statistics for local authorities in Great Britain, 1999-2004 Q1
• Table 20: The number of permanent dwellings completed in Great Britain by tenure, 1990/91 - 2003/04
• Table 21: Number of dwellings sold under the Right to buy scheme by local authorities in Great Britain, 1980/1981 - 2003/2004
• Table 22: Gross advances for RTB sales under local authorities in Great Britain, 1999/2000 to 2003/2004
• Table 23: Year-on-year growth in the total secured lending and Right to buy markets, 1999/2000 - 2003/2004
• Table 24: Halifax House Prices Index, 2000-2004
• List of Figures
• Figure 1: The Right to buy purchase process, July 2005
• Figure 2: The number of properties sold via Right to buy under local authorities in Great Britain has fluctuated throughout the years, 1980/81 to 2003/2004
• Figure 3: Gross advances in the Right to buy mortgage market reached ｣2.6 billion in 2003/2004
• Figure 4: Gross advances for properties sold under RTB by local authorities in Great Britain amounted to ｣2.8 billion in 2003/2004, 1999/2000 to 2003/2004
• Figure 5: Growth in the Right to buy mortgage market outpaced growth in the total secured lending market in 2002/2003 and 2003/2004, 1999/00 - 2003/04
• Figure 6: 52.6 per cent of households which bought their present accommodation under Right to buy had a household income of under ｣15,000 in 2003/2004, 2003/2004
• Figure 7: Growth in house prices were strong over the last three years, 2000 - 2004
• Figure 8: 48 per cent of households who bought their present accommodation under the Right to buy scheme were inactive, self-employed or unemployed, 2003/2004
• Figure 9: An estimated 45 per cent of RTB gross advances in 2003/2004 accounted for the non-standard sector, 2003/2004
• Figure 10: Dwelling stock owned by local authorities is continuously falling, 2000-2004
• Figure 11: Buy-to-let and self-cert have grown faster and are bigger in size than Right to buy, 2000-2004
• Figure 12: After falling back to its normal level in 2004/05, gross advances in the England Right to buy mortgage market will reach ｣2.7 billion in 2008/09, 2003/04 to 2008/09f
• Figure 13: RTB gross advances in Great Britain under local authorities will grow at a stable rate from 2004/05 to 2008/09 despite a continuous fall in the number of Right to buy sales, 2003/04-2008/09
• Figure 14: The UK Mortgage Market Map covers a wide range of mortgage sectors
• Figure 15: Mortgage sectors covered within the UK Mortgage Market Map
• Figure 16: Datamonitors core consulting capabilities

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