Abstract
Overview
Introduction
The sub-prime mortgage market has come a long way since its beginnings, emerging as a significant niche segment in the UK mortgage market. The sub-prime mortgage market continues its expansion with yet another good year in 2006. However, market dynamics are becoming more difficult and lenders need to monitor its ongoing challenges.
Scope
- Sizes the UK sub-prime mortgage market and presents scenario-based five year forecasts.
- Provides market share data for the major competitors in the sub-prime mortgage market.
- Gives insight into the future challenges of the market and how lenders could respond.
Report Highlights
The sub-prime mortgage market experienced another strong year of growth in 2006, expanding by 28 per cent in gross advances on the previous year' s level. While the sub-prime mortgage population has fallen as a whole over the last five years, it has been growing since 2004, which has helped to boost the market.
The near-prime sector is currently the fastest growing segment of the sub-prime mortgage market. In fact, whereas around five years ago the majority of the market was for medium and heavily credit impaired individuals, the market has now altered. Moreover, many lenders that cater to both segments have experienced a shift to lower risk volumes.
As the market becomes increasingly saturated, lenders will need to look at new ways of staying competitive. Indeed, lenders will need to look to differentiation, and cost efficiency and funding will become crucial to overall success. Moreover, as the market becomes increasingly saturated, many lenders will look to expand into European markets.
Reasons to Purchase
- Understand how the market is changing and where the new opportunities lie.
- Gives you a competitive edge by providing you with a thorough analysis of the UK sub-prime mortgage market.
- Draw on Datamonitor' s five-year scenario-based forecasts to plan your future strategy with confidence.
Table of Contents
- Overview
- Catalyst
- Summary
- Executive Summary
- The sub-prime mortgage market in 2006 and future outlook
- The sub-prime mortgage market experienced yet another good year in 2006
- Sub-prime mortgage individuals are at the least worthy end of the credit spectrum
- The number of sub-prime mortgage individuals reached 4.2 million in 2006
- The sub-prime mortgage market grew by 28 per cent in gross advances in 2006
- A strong mortgage market and rising sub-prime population were key to the market' s growth
- Moreover, the future outlook of the market looks bright
- In Datamonitor' s opinion the sub-prime mortgage market will slow, but will grow faster than the mainstream mortgage market
- The sub-prime mortgage market experienced yet another good year in 2006
- Competitive dynamics of the sub-prime mortgage market
- Increased competition has led to the emergence of a number of
individual sub-markets
- The near-prime segment has become the largest and most competitive sub-segment in the sub-prime mortgage market
- The medium/heavy segment is smaller, and in turn, somewhat less competitive
- In terms of gross advances share, the sub-prime mortgage market is
still dominated by specialist players
- GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead the pack
- Players must adopt new ways of competing in a more saturated market
- Increased competition has led to the emergence of a number of
individual sub-markets
- Issues in the sub-prime mortgage market
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- Such a situation could be unsafe given that lenders have been taking on more risk in the last few years
- Events in the US sub-prime mortgage market hit many lenders by surprise
- With high levels of indebtedness, the UK does merit some concern
- The UK sub-prime mortgage market is likely to avoid a similar fate given its significant differences
- Lenders should nonetheless take events in the US as a lesson learned
- The sub-prime mortgage market is now under regulatory scrutiny
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- The sub-prime mortgage market in 2006 and future outlook
- Table of Contents
- Table of figures
- Table of tables
- The UK sub-prime mortgage market in 2006 and future outlook
- The UK sub-prime mortgage market experienced yet another good year in
2006
- Sub-prime mortgage individuals are at the least worthy end of the
credit spectrum
- There are a number of drivers that affect the size of the sub-prime mortgage population
- Sub-prime individuals are part of a broader population of non-standard individuals
- The sub-prime mortgage population is now on the rise after a number of
years of decline
- The economic environment was more difficult for consumers because of high household debt
- As a result, the number of sub-prime mortgage individuals reached 4.2 million in 2006
- The sub-prime mortgage market grew by 28 per cent in gross advances in
2006
- The sub-prime mortgage market continues to outperform the mainstream market
- Moreover, the sector accounted for 7.1 per cent of the market in 2006
- Remortgaging accounts for around half of advances in the sub-prime mortgage market
- Sub-prime mortgage individuals are at the least worthy end of the
credit spectrum
- A strong mortgage market and rising sub-prime population were key to the
market' s growth
- A healthy mortgage market in general helped to drive the sub-prime mortgage market forwards
- House prices performed better than expected in 2006
- The sub-prime mortgage population is now on the rise
- Consumers are becoming increasingly aware of the sub-prime sector
- Although in percentage terms, consumer awareness remains low
- Moreover, the future outlook of the UK sub-prime mortgage market looks
bright
- The methodology for the UK sub-prime mortgage market incorporates variation in mortgage penetration
- Datamonitor forecasts three scenarios for the sub-prime mortgage market
- In Datamonitor' s opinion the UK sub-prime market will slow, but will grow faster than the mainstream market
- In a best case scenario, the sub-prime market grows more slowly than the mainstream market
- In a worst case scenario, the sub-prime mortgage market will contract significantly
- The UK sub-prime mortgage market experienced yet another good year in
2006
- Competitive dynamics of the UK sub-prime mortgage market
- The market is host to specialists, mainstream lenders and investment
banks
- While the market has changed substantially, specialist lenders continue to dominate the market
- Investment banks began to get involved in 2000
- Mainstream lenders have also entered the market
- In particular, building societies have increased their presence in the non-standard market, mainly through small players
- In terms of gross advances share, the market is still dominated by
specialist players
- GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead the pack
- Most lenders had a successful year in 2006
- The sub-prime mortgage market has become increasingly competitive
- Increased competition has led to the emergence of a number of individual sub-markets
- The near-prime segment has become the largest and most competitive
sub-segment in the sub-prime mortgage market
- The market now has a large number of players
- It appears that there are now too many players for the size of the market
- The medium/heavy segment is smaller and somewhat less competitive
- The medium/heavy sub-prime sector has fewer participating lenders
- While competition has intensified, it is not yet at the same stage as that of the near-prime sector
- Moreover, packagers dominate this market, in contrast to brokers in the near-prime market
- In fact, technology is not used to the same degree either
- But this segment could see a rise in custom in a few years' time, with competition tightening too
- Meanwhile, pricing has become progressively tougher
- As a result, margins have been falling
- Going forward, established lenders in particular will need to readjust their models and expectations
- Players must adopt new ways of competing in a more saturated market
- Cost efficiency and funding will become crucial to overall success
- The packaging industry will come under consolidation
- Some lenders will look to expand into other markets
- Some lenders will enter European sub-prime mortgage markets
- Other lenders are looking to enter the UK commercial mortgage market
- The market is host to specialists, mainstream lenders and investment
banks
- Issues in the UK sub-prime mortgage market
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- Consumers continue to hold significant debts
- Such a situation could be unsafe given that lenders have been taking on more risk in the last few years
- But most believe that the situation is under control
- Some of the newer lenders may be the ones taking on most risk
- Events in the US sub-prime mortgage market hit many lenders by surprise
- A significant number of sub-prime mortgage firms are now in financial
trouble
- Such a situation points to lenders who became too aggressive
- With high levels of indebtedness, the UK does merit some concern
- The UK sub-prime mortgage market is likely to avoid a similar fate
given its significant differences
- It appears that as of yet, lenders have not changed their overall risk strategy
- Yet some remain anxious
- Lenders should take the US events as a lesson learned nonetheless
- A significant number of sub-prime mortgage firms are now in financial
trouble
- The sub-prime mortgage market is now under heavier regulatory scrutiny
than before
- The FSA found a mixed picture of sub-prime mortgage broker compliance in late 2006
- It is too early to speculate, but the FSA may end up implementing new regulation of sub-prime lenders
- Moreover, lenders are wary of the European Commission' s possible plans
for mortgage market integration
- Lenders are waiting for the White Paper in September 2007
- Mortgage redemptions will become a drain on profits for those who depend
on them
- Sub-prime customers are becoming increasingly financially sophisticated
- Such a trend is impacting lenders' profits
- Conclusions
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- APPENDIX
- Supplementary data
- Data tables for chapter ' The Sub-prime Mortgage Market in 2006 and Future Outlook'
- Data tables for chapter ' Issues in the Sub-prime Mortgage Market'
- Data tables for sizing methodologies
- Definitions
- AAGR
- Balances outstanding
- Bank of England base rate
- CAGR
- CCJs
- Gross advances
- LIBOR
- Loan-to-value (LTV)
- Mortgage intermediary
- Non-standard
- Remortgaging
- Second charge loan
- Sub-prime
- Methodology
- Sizing methodology for the UK non-standard population
- Reasons for credit rejection
- Elimination of double counting
- Datamonitor uses seven steps to size the UK non-standard population
- Bankruptcies are excluded because of double counting
- Sizing methodology for the sub-prime mortgage population
- Elimination of double counting
- Five steps are used to size the UK sub-prime mortgage population
- Bankrupts are excluded because of double counting
- Sizing methodology for the UK sub-prime mortgage market
- Step 1: Estimating the number of sub-prime households in the UK
- Step 2: Estimating the number of sub-prime households with a mortgage
- Step 3: Calculating the percentage of UK dwellings with a mortgage that is accounted for by the sub-prime mortgage population
- Step 4: Estimating the value of the sub-prime mortgage market
- Step 5: Adding in the self-certified sub-prime segment of the market
- Step 6: Comparing the total to market shares of major UK sub-prime mortgage providers
- Sizing methodology for the UK non-standard population
- Further reading
- Relevant links
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: UK non-standard population, 2002-2006
- Table 2: Number of sub-prime mortgage individuals and their share of the total working population, 2002-2006
- Table 3: Number of mortgage repossessions and arrears, 2002-2006
- Table 4: Sub-prime mortgage market advances and the number of sub-prime mortgage households, 2002-2006
- Table 5: Forecasted UK sub-prime mortgage market gross advances compared to the total UK mortgage market' s gross advances and the UK sub-prime mortgage population under the Datamonitor' s View scenario, 2006-2011f
- Table 6: Forecasted UK sub-prime mortgage market gross advances compared to the total UK mortgage market' s gross advances and the UK sub-prime mortgage population in a best case scenario, 2006-2011f
- Table 7: Forecasted UK sub-prime mortgage market gross advances compared to the total UK mortgage market' s gross advances and the UK sub-prime mortgage population in a worst case scenario, 2006-2011f
- Table 8: List of sub-prime mortgage lenders, May 2007
- Table 9: Number of CCJs registered and on record, 1987-2006
- Table 10: Number of properties carrying an arrears or repossession record, 1997-2006
- Table 11: Number of bankruptcies in England and Wales
- Table 12: Year-on-year growth of the sub-prime, mainstream and total mortgage markets, 2003-2006
- Table 13: UK mortgage market quarterly and annual gross advances, 2002-2006
- Table 14: Annual house price growth on a quarterly basis, Q1 2003-Q4 2006
- Table 15: Secured and unsecured debt-write offs by banks to individuals, December 2001-December 2006
- Table 16: Percentage of individuals with a mortgage by employment status, 2006
- Table 17: Percentage of individuals with a mortgage by socio-economic group, 2006
- Table 18: Mortgage advances by group, indexed to the UK average, 2006
- Table 19: UK dwellings by tenure, 2002-2006e
- Table 20: Household tenure, 2006
- Table 21: The percentage of UK dwellings with a mortgage that is accounted for by the sub-prime mortgage population, 2002-2006
- List of Figures
- Figure 1: Sub-prime individuals are part of a broader population of non-standard individuals, 2007
- Figure 2: The number of sub-prime mortgage population is on the rise, 2002-2006
- Figure 3: The sub-prime mortgage market had another solid year in 2006, 2002-2006
- Figure 4: In Datamonitor' s opinion the sub-prime mortgage market will reach £31.5 billion by 2011f, 2006-2011f
- Figure 5: A certain degree of subjectivity is needed when differentiating groupings in the sub-prime mortgage market because some lenders are inevitably willing to accept greater risk than others, 2007
- Figure 6: GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead the sub-prime mortgage market in terms of gross advances, 2006
- Figure 7: Drivers of the sub-prime mortgage population and their consequences, 2007
- Figure 8: Sub-prime individuals are part of a broader population of non-standard individuals, 2007
- Figure 9: The number of sub-prime mortgage population is on the rise, 2002-2006
- Figure 10: The number of CCJs on record increased for the first time since 1995, 1987-2006
- Figure 11: Arrears and repossessions on record have continued to decline but it may not be long until they begin to rise once again, 1997-2006
- Figure 12: Bankruptcies have continued to increase in recent years, 1997-2006
- Figure 13: The sub-prime mortgage market had another solid year in 2006, 2002-2006
- Figure 14: The sub-prime mortgage market continues to outperform the mainstream market, 2003-2006
- Figure 15: Gross advances in the UK mortgage market were at a record-breaking level in 2006, 2002-2006
- Figure 16: Data from both Halifax and Nationwide highlights that house price growth picked up in 2006 after appearing to cool down in 2005 , Q1 2003 - Q4 2006
- Figure 17: In Datamonitor' s opinion the UK sub-prime mortgage market will reach £31.5 billion by 2011f, 2006-2011f
- Figure 18: Under an optimistic view, the sub-prime mortgage market will reach £29.9 billion by 2011f, 2006-2011f
- Figure 19: Under an pessimistic view, the sub-prime mortgage market will reach £24.1 billion by 2011f, 2006-2011f
- Figure 20: GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead the sub-prime mortgage market in terms of gross advances, 2006
- Figure 21: A certain degree of subjectivity is needed when differentiating groupings in the sub-prime mortgage market because some lenders are inevitably willing to accept greater risk than others, 2007
- Figure 22: The average UK adult owed £4,522 in unsecured personal debt at the end of 2006, 2002-2006
- Figure 23: The number of secured and unsecured debt-write offs by banks has continued to increase in the UK, December 2001-December 2006
- Figure 24: It is important to exclude segments of the population not relevant to an estimation of the UK sub-prime mortgage market
- Figure 25: Methodology used to calculate the number of sub-prime households in the UK
- Figure 26: Households eliminated in Datamonitor' s estimation of sub-prime households with a mortgage
- Figure 27: The self-employed population are much more likely to have a mortgage than the unemployed population, 2006
- Figure 28: DE households are easily the least likely socio-economic group to own their property with a mortgage, 2006
- Figure 29: Compared to the mainstream market, a much greater proportion of sub-prime households are rented from local authorities and far fewer are owned with a mortgage, 2006
- Figure 30: The average mortgage loan advanced to self-employed borrowers is actually higher than the average advance across the UK mortgage market as a whole, 2006
- Supplementary data
