Abstract
Two decades of global financial innovation are under threat following the default on hundreds of thousands of sub-prime mortgages in the US. In the UK, the emergence of the non-standard mortgage market in the past decade has been based largely on similar securitised financing techniques used in the US, enabling risk to be transferred away from lenders to investors. These techniques have enabled large numbers of people who do not meet mainstream lenders criteria to be offered mortgages by a new breed of specialist lenders.
Demand for these non-standard mortgages will continue to grow as people' s financial circumstances become ever more complicated. However, accessing such facilities will become harder. This report assesses the implications of the credit crunch on non-standard lending, which is no longer a niche part of the mortgage industry.
Mintel' s report will provide a thorough appraisal of the current state of the UK non-standard mortgage market and assess its prospects for growth. The report offers:
- an investigation into the internal and broader macroeconomic factors impacting on the market
- an overview of the market' s competitive context, and its strengths and weaknesses
- insight into the leading views of experts
- an examination of recent and projected market growth and segment performance
- an appraisal of the supply side of the market, including market shares of the largest mortgage lenders
- comments on product innovation, distribution and promotion
- consumer demand for lending products
- the results of Mintel' s independently-commissioned consumer research, which offers insight into the leading, characteristics, attitudes, and behaviour of the non-standard consumer.
Table of Contents
- Issues in the Market
- Historical context
- Scope of the report
- Key issues examined
- Market Definitions
- Abbreviations
- Market in Brief
- The ' non-standard' market comprises a broad range of borrower types
- Figure 1: Lending risk categories and examples of non-standard mortgage products, 2007
- Shifting demographics and behaviours expand the market
- New companies have emerged to cater for these changing needs...
- ...but the recent credit crunch halts further product development
- Leading brands in the sector
- Non-standard business accounts for a third of total mortgage lending
- The wider mortgage market
- More difficult times ahead
- Regulatory pressures set to intensify
- Key consumer research findings: identifying the non-standard consumer
- Figure 2: Proportion of adults who meet the main non-standard lending criteria, July 2007
- Applying for a mortgage
- Internal Market Environment
- Key Points
- US sub-prime meltdown...
- ...and financial market contagion...
- ...lead to consumer panic and crisis at Northern Rock
- Pulling down the shutters
- Rate shock
- Figure 3: Bank rate and BBA LIBOR, March-September 2007
- Sub-prime and self-cert sectors come under the regulatory microscope
- FSA study into sub-prime results in five firms facing enforcement action
- Treating Customers Fairly
- Consumer Credit Act, 2006 will boost opportunities in secured loans market
- Keeping up with the changing needs of borrowers
- Pricing risk in a climate of rising indebtedness
- Debt is a way of life for around half the population
- The Easy-debt Society
- Companies starting to share customer information
- Debt judgements hit ten-year high
- Figure 4: Consumer CCJs (excluding DVLA judgements) registered 2002-07*
- Implication
- Majority of people dislike being in debt
- Figure 5: Agreement with selected financial lifestyle statements, 1993-2006
- The threat of escalating mortgage debt write-offs
- Figure 6: Mortgage debt write-offs and arrears, 2002-07
- Home repossessions on the rise
- Figure 7: Mortgage possession actions, 1990-07
- Implication
- Individual insolvencies spiral upwards
- Figure 8: Individual bankruptcies and IVAs in England and Wales (not seasonally adjusted) 1998-2007
- Tackling over-indebtedness
- The growth in debt consolidation
- Broader Market Environment
- Key Points
- Clouds loom over the UK economy
- Figure 9: Total PDI, consumer expenditure and savings, 2003-12
- Implication
- Sharp drop in borrowing activity
- Figure 10: Expected savings, investment and borrowing activity -- Q3/Q4 2002-Q3/Q4 2007
- Still bright employment picture
- Figure 11: Workforce employed and self-employed -- UK, 2000-07
- Implications
- The debt mountain edges up higher
- Figure 12: Consumer credit outstanding and secured borrowings 1997-2007
- Implications
- Average household debt over £53,000Figure 13: PDI, Total loans outstanding, Total debt/PDI, Average household debt and consumer debt write offs, 2002-07
- Are interest rates taking effect?
- Figure 14: Consumer confidence and bank rates 1988-2007
- The role of LIBOR comes to the fore
- Mortgage rate rise
- Figure 15: Mortgage rates, 2002-07
- Implications
- Signs of a slowdown
- HIP invasion
- Affordability
- The London effect
- House price growth set to moderate...
- ...but BTL may flourish
- Competitive Context
- Key Points
- Firm growth in mortgage demand
- Specialist lenders taking market share
- Figure 16: Mortgage Approvals all lenders and specialist lenders, 2002-H1 2007
- Specialist lenders have a greater focus on house purchase
- Figure 17: Mortgage Approvals all lenders and specialist lenders 2002-H1 2007
- Specialist lenders' share of the main mortgage sectors
- Figure 18: Specialist lenders market share by mortgage type, 2002-7
- Outlook
- Growth rate of consumer credit slowing down
- Figure 19: Consumer lending 12-month growth rates*, March 2002-June 2007
- Changing shape of non-standard specialists
- Strengths and Weaknesses in the Market
- Growing demand offset by tougher operating environment
- Figure 20: Summary SWOT analysis of the non-standard market, 2007
- Unchartered waters beckon, unless interest rates fall suddenly
- Financial risks facilitate the need for consumer education
- Market Size and Forecast
- Key Points
- Sizing the non-standard population
- Figure 21: Size of the non-standard population, 2007
- A sizeable minority relying on non-standard providers
- Figure 22: Breakdown of use of mainstream and non-standard/specialist providers, July 2007
- The post-Northern Rock Environment
- Credit scoring
- Most have an unblemished record
- Figure 23: Credit scoring in the British population, August 2007
- From squeaky clean to torpedoed prime
- Figure 24: Credit risk groups, by demographic group, July 2007
- Forecasting the non-standard market
- The Stationary Demographic Scenario
- Figure 25: Future changes in credit score groups based on demographic trends, 2007 & 2012
- Shifting definitions
- Gainers and losers -- The Squeeze Scenario
- Almost a million could be lost...
- ...but the gains could be greater
- This means a 2008 potential consumer base of 17.83 million
- Gainers and losers -- The Tight Squeeze Scenario
- The more restrictive -- the better it is for the non-standard sector
- A tighter squeeze better for number of potential customers
- Figure 26: Forecast scenarios of non-standard potential consumer base, according to severity of credit squeeze, 2007 & 2012
- Segment Performance
- Key Points
- Roughly two in five mortgages are ' non-standard'
- Figure 27: Estimated breakdown of the UK mortgage market -- number of outstanding prime versus non-standard mortgages, 2006 and 2007
- Gross mortgage lending picks up strongly in 2006
- Figure 28: Gross mortgage advances, by type of loan, (not seasonally adjusted), 2001-07
- Total non-standard mortgage market worth £125 billion in 2007Figure 29: Gross non-standard mortgage lending, by type of loan, 2006-07
- Little impact of rising interest rate on BTL sector
- Affordable housing
- Shared-ownership schemes
- A niche sector set for further expansion
- Right-to-Buy
- Self-certification
- Self-cert and fast track mortgages a cause for concern?
- Full range of products
- Sub-prime -- US contagion set to spread to UK
- Figure 30: Recent changes in sub-prime borrowing rates and criteria, 2007
- Mounting arrears and repossessions likely -- calls for greater regulation inevitable
- Market Share
- Key Points
- HBOS is the leader of the pack, by a wide margin
- Figure 31: Lenders' share of UK mortage market, by gross advances, 2005-06
- Non-standard specialists grew their balances strongly in 2006
- Figure 32: Lenders' share of UK mortage market, by balances outstanding, 2005-6
- Changes afoot?
- Companies and Products
- Key Points
- Some 30 lenders operate in the non-standard mortgage market
- Figure 33: Summary of the main providers of non-standard mortgages in the UK, August 2007
- Recent entrants
- The largest non-standard lenders
- Birmingham Midshires
- GMAC-RFC
- GE Money Home Lending
- Kensington Mortgages
- Mortgage Express
- Other significant players
- Debt consolidation companies prosper
- Leading suppliers
- Brand Communication and Promotion
- Key Points
- Non-standard mortgage brands will mean little to consumers
- Poor financial promotion in sub-prime sector
- Most non-standard specialists target their advertising at IFAs and brokers rather than consumers
- Specialist mortgages account for just 1% of total mortgage adspend
- Figure 34: Mortgage adspend, by product sub-category, May 2007
- The largest specialist mortgage advertisers have budgets around £0.5
million
- Figure 35: Leading specialist mortgage advertisers, years to May 2006 and May 2007
- Figure 36: Mortgage adspend, by outlet type, year, May 2007
- Implication
- More advertising for secured than unsecured personal loans
- Figure 37: Personal loan adspend, by type, 2002-07
- Implication
- Picture Financial -- largest-ever financial start up growing its presence
in secured loans market
- Figure 38: Leading advertisers in the secured personal loans sector, years to May 2006 and May 2007
- Channels to Market
- Key Points
- Most non-standard business is generated via intermediaries...
- ... referrals come mainly from IFAs, mortgage brokers, packagers, and mortgage clubs
- Packagers provide a supporting role to brokers and lenders
- Online developments at heart of distribution
- Online revolution
- The Consumer -- Credit Ownership and Usage
- Key Points
- Credit cards and mortgages most-widely-held credit products
- Figure 39: Ownership of selected financial products, July 2007
- 25-45-year-olds biggest users of credit; 55-64-year-olds taken most to
plastic cards
- Figure 40: Ownership of selected financial products, by gender, age, socio-economic group, marital status and lifestage, July 2007
- Family lifestage key to the mortgage market
- Figure 41: Ownership of selected financial products, by socio-economic group, work status, income, housing tenure, and region, July 2007
- MPPI -- giving non-standard lenders a degree of safety?
- Figure 42: Ownership of selected financial products, by technology and media preferences, July 2007
- The importance of cross-selling
- Figure 43: Sources of credit used, July 2007
- Four-fifths of borrowers use mainstream lenders
- Figure 44: Breakdown of use of mainstream and non-standard/specialist providers, July 2007
- Young people, DEs, and families more likely to use non-standard lenders
- Figure 45: Breakdown of use of mainstream and non-standard providers, by gender, age, social class, and lifestage, July 2007
- People likely to be struggling financially are more likely to use
non-standard lenders
- Figure 46: Breakdown of use of mainstream and non-standard providers, Household income, working status, tenure, and marital status, July 2007
- Scotland has the highest proportion of consumer credit borrowers
- Figure 47: Breakdown of use of mainstream and non-standard providers, TV Region and ACORN analysis, July 2007
- All ' new' media users most likely to borrow
- Figure 48: Breakdown of use of mainstream and non-standard providers, by Technology and Media preferences, July 2007
- Implications and opportunities
- Car and home improvements top credit usage
- Figure 49: Reasons for borrowing money, July 2007
- Mainstream lenders used most for car purchase, non-standard lenders most
for essential household items
- Figure 50: Reasons for borrowing money, mainstream and non-standard providers, July 2007
- Implications and opportunities
- The Consumer -- Credit Risk Factors
- Key Points
- A large proportion of the population falls outside prime lending criteria
- Figure 51: Credit risk factors, July 2007
- Older age groups have higher credit risk
- Figure 52: Credit risk factors, by age, July 2007
- Similar incidence of impaired credit factors amongst C1, C2 and Ds
- Figure 53: Credit risk factors, by gender and socio-economic group, July 2007
- More credit impairment in lower income bands
- Figure 54: Credit risk factors, by income, July 2007
- Higher incidence of credit impairment in Scotland
- Figure 55: Credit risk factors, by region, July 2007
- Implications and opportunities
- Some 4.3 million people may struggle to get a mainstream mortgage
- Figure 56: Ability to obtain new mortgage/remortgage, July 2007
- Lack of income a major constraint for first-time buyers and singles
- Figure 57: Ability to obtain new mortgage/remortgage, by gender, age, socio-economic group and marital status, July 2007
- ABC1s more confident of mainstream mortgage availability
- Figure 58: Ability to obtain new mortgage/remortgage, by lifestage, special group, working status and household income, July 2007
- Three-quarters of current mortgage borrowers expect to get a
mortgage/remortgage from a mainstream lender
- Figure 59: Ability to obtain new mortgage/remortgage, by household tenure and region, July 2007
- Implications and opportunities
