Abstract
House prices have been in decline since around Q3 2007, having fallen by 16% in 2008 according to both the Halifax and Nationwide price indices. This has had major implications on the mortgage market, compounded by the fact that owing to massive losses from US sub-prime investments and bad debts in the UK, banks have little cash to lend. As a result, gross mortgage lending fell by 29% in 2008 as lenders tightened lending criteria by lowering LTVs and income multiples, with the best rates now reserved for homeowners with a 40% equity share in their property.
While quantitative easing, the Treasury' s Asset Protection Scheme and commitments from several major providers to increase lending during 2009 may help, the year is set to be another challenging one for mortgage providers.
This report explores the issues that have plagued the mortgage market in detail and looks at the strengths and weaknesses that exist here. The state of the market in terms of its size, growth and individual segment performance is assessed, as well as the performance of key players within the market and the strategies that they are utilising in such challenging conditions. The shift in distribution channels from intermediated to direct sales is then explored, before concluding with an analysis of the consumer' s perspective on the market.
Key issues
Liquidity issues - lack of credit availability
Tighter lending criteria - lower LTVs and income multiples
Falling house prices deter potential buyers from entering the market
Intermediaries are suffering as lenders focus more on direct channels
Fewer loans for house purchase, especially for first-time buyers
Remortgage business has also been hit, with more people simply reverting to SVR
The low base rate has increased demand for trackers (forcing lenders to tighten up)
It has also squeezed margins for lenders, impacting profitability.
Table of Contents
- Issues in the Market
- Key issues
- Abbreviations
- Market in Brief
- The outlook remains bleak...
- ... as consumer confidence falls and unemployment rises
- Competition from the rental market
- Gross mortgage lending fell by almost a third in 2008
- Figure 1: Total mortgage lending, gross and net advances, 2000-08
- Fixed rate mortgages are the most popular choice
- Figure 2: Mortgage ownership, by product type, 2004-08
- HBOS is the market leader
- Figure 3: Market share of top 20 mortgage providers, by gross advances,
2007
- Intermediaries have been hard hit by the downturn
- Figure 4: Distribution of gross advances, by channel type, 2007
- A third of people have a mortgage outstanding on their home...
- Figure 5: Property ownership, January 2009
- ... and most still think property is a good long-term investment
- Internal Market Environment
- Key points
- The number of housing transactions has fallen
- Figure 6: Number of UK property transactions with a value of £40,000
upwards (seasonally adjusted), Q2 2005-Q3 2008
- Repossessions have increased...
- ... encouraging the government to step in
- Liquidity remains a major constraint
- Figure 7: Rolling 3-month average LIBOR vs BoE base rate, Jan 2003-Jan
2009
- Rescue package number two on the horizon
- Figure 8: UK rescue package*, February 2009
- A new era of tighter regulation in the future?
- The end of 100%+ mortgages?
- Figure 9: Residential loans to individuals*, by LTV ratio, Q3 2007 vs Q3
2008
- Figure 10: Number of mortgage products available, February 2008 vs March
2009
- Broader Market Environment
- Key points
- House prices continue to decline...
- Figure 11: Average house prices, Jan 2007-Jan 2009 (monthly data,
seasonally adjusted)
- ...though some are optimistic about signs of recovery
- Consumer confidence has fallen sharply...
- Figure 12: UK Consumer confidence, major indices, May 2004-January 2009*
- ...as more households struggle to make ends meet
- Figure 13: Households' current financial position, Q4 2007-Q4 2008
- Demand for mortgages remains subdued
- Figure 14: Expected mortgage and property purchase activity, Q3/Q4
2002-Q4 2008/Q1 2009
- Base rate drops to an all-time low...but also offers opportunities
- Figure 15: Bank of England base rate, January 2000-February 2009
- Unemployment looks set to increase further in 2009
- Housing transactions fall sharply
- Competitive Context
- Key points
- Changing aspirations of home ownership?
- Owner-occupancy has remained static since 2000
- Figure 16: Number of households in England and Wales, by tenure,
1981-2007
- Sale and rent back potentially impacts the market
- Strengths and Weaknesses in the Market
- Market strengths
- Evidence of rising pent-up demand
- Houses becoming more affordable for FTBs
- Stamp duty threshold has been increased
- An emphasis on direct sales reduces costs for lenders
- Market weaknesses
- Falling house prices deter potential buyers
- Liquidity continues to be a problem
- Arrears, repossessions and bad debts are rising
- Tighter lending criteria restrict loan availability
- Market Size and Forecast
- Key points
- Number of mortgage accounts declines slightly in 2008
- Figure 17: Total number of mortgage accounts, 1997-2008
- Total mortgage debt stands at over £1.2 trillion
- Figure 18: Total mortgage debt (amounts outstanding at year end), 2000-08
- Net lending down by two thirds in 2008
- Figure 19: Total mortgage lending, gross and net advances, 2000-08
- New loans for house purchase have been particularly hard hit
- Figure 20: Number of mortgage approvals, by type of mortgage, Jan
2006-Dec 2008 (monthly data, seasonally adjusted)
- Remortgages now account for over half of gross advances
- Home-movers account for three fifths of house purchase loans
- Figure 21: Loans advanced for house purchase, by type of borrower,
2002-08
- Buy-to-let growth has slowed
- Figure 22: Number and value of buy-to-let mortgages outstanding, 2000-08
- Market forecast
- A slow recovery expected from 2010
- Figure 23: Forecast of total gross advances (at current prices), 2003-13
- The remortgage market may hold up better in 2009
- Figure 24: Forecast of gross advances, by type of loan (at current
prices), 2003-13
- Factors used in the forecast
- Market Segmentation
- Key points
- Fixed rate mortgages are the product of choice for most...
- Figure 25: Mortgage ownership, by product type, 2004-08
- ...although trackers have become more popular recently
- Changing landscape affects margins
- Market Share
- Key points
- Banks benefit from specialist lenders pulling out of the market
- Figure 26: Gross advances, by type of lender, Jan 2007-Dec 2008 (monthly
data, seasonally adjusted)
- Abbey performed well in 2008...
- Figure 27: UK gross and net mortgage lending of key providers, 2008
- ...as did Barclays, outperforming its competitors on net lending
- The disappearance of Northern Rock
- Figure 28: Secondary lenders results and balances, 2008
- HBOS led the market in 2007
- Figure 29: Market share of top 20 mortgage providers, by gross advances,
2007
- Winners and losers -- predictions for 2009
- Companies and Products
- Key points
- Navigating the mortgage maze
- Consolidation and contraction within the market
- Scaling back lending and cherry-picking customers
- Company snapshots
- HBOS
- Abbey
- Lloyds TSB (Lloyds Banking Group)
- Nationwide
- Other developments in the market
- Brand Communication and Promotion
- Key points
- Mortgages adspend has gradually decreased since 2005...
- Figure 41: Top ten categories of financial services adspend, 2005-08
- ...and fell significantly in 2008
- Figure 42: Top ten sub-categories of mortgages adspend, 2005-08
- Northern Rock' s mortgage adspend falls to zero in 2008
- Figure 43: Top 20 advertisers of mortgages, by adspend, 2005-08
- A more balanced advertising strategy has emerged
- Figure 44: Total mortgages adspend, by media type, 2008
- Channels to Market
- Key points
- Current account providers have a big advantage
- Figure 45: Sources of information and advice used for arranging a
mortgage, January 2009
- TGI data show direct arrangement is most popular
- Figure 46: Mortgage ownership, by method of arrangement, 2002-08
- Intermediaries dominated the market in 2007
- Figure 47: Distribution of gross advances, by channel type, 2007
- The Consumer -- Ownership and Expectations
- Key points
- Where now for first-time buyers?
- Figure 48: Property ownership, January 2009
- The buy-to-let generation re-thinks their options
- Plenty of younger people on the ladder -- and plenty wanting to join them
- Figure 49: Property ownership, by age, January 2009
- Selling to the better-off
- Figure 50: Property ownership, by socio-economic group, January 2009
- Clearing debts before retirement
- Figure 51: Property ownership, by lifestage, January 2009
- The boom is well and truly over
- Figure 52: Expected growth in house prices, January 2009
- Irrational exuberance turns to rational pessimism
- A new approach to dinner party conversations
- Figure 53: Expected growth in house prices, by socio-economic group,
January 2009
- High income, more worries
- Figure 54: Expected growth in house prices, by household income, January
2009
- Not much optimism among younger people
- Figure 55: Expected growth in house prices, by age, January 2009
- Homeowners no more optimistic than the general public
- Figure 56: Expected growth in house prices, by property ownership,
January 2009
- The Consumer -- Attitudes and Advice
- Key points
- The love affair isn' t dead yet
- Figure 57: Attitudes towards buying property and the housing market,
January 2009
- PR problems ahead?
- Collateral damage for lenders?
- Figure 58: Attitudes towards buying property and the housing market, by
gender and age, January 2009
- Key customers the most suspicious
- Figure 59: Attitudes towards buying property and the housing market, by
socio-economic group and lifestage, January 2009
- Potential buyers shut out of the market
- Figure 60: Attitudes towards buying property and the housing market, by
property ownership, January 2009
- Disintermediation isn' t just for lenders
- Figure 61: Sources of information and advice used for arranging a
mortgage, January 2009
- Mortgage-holders particularly reliant on the banks
- Figure 62: Sources of information and advice used for arranging a
mortgage, by property ownership, January 2009
- Building word of mouth for future customers
- Figure 63: Sources of information and advice used for arranging a
mortgage, by age, January 2009
- A broad base of opinion
- Figure 64: Sources of information and advice used for arranging a
mortgage, by socio-economic group, January 2009
- Appendix
- Property ownership and mortgage holdings
- Figure 74: Property ownership, by demographic group, January 2009
- Price expectations
- Figure 75: Property price expectations, by demographic group, January
2009
- Attitudes towards buying property
- Figure 76: Attitudes towards buying property and the housing market, by
gender and age, January 2009
- Figure 77: Attitudes towards buying property and the housing market, by
socio-economic group and lifestage, January 2009
- Figure 78: Attitudes towards buying property and the housing market, by
marital status and special group, January 2009
- Figure 79: Attitudes towards buying property and the housing market, by
working status and household income, January 2009
- Figure 80: Attitudes towards buying property and the housing market, by
region, January 2009
- Figure 81: Attitudes towards buying property and the housing market, by
newspaper readership and internet usage, January 2009
- Mortgage switching behaviour
- Figure 82: Mortgage switching behaviour, by demographic group, January
2009
- Sources of advice
- Figure 83: Key sources of information and advice used for arranging a
mortgage, January 2009
- Attitudinal groups
- Figure 84: Demographic characteristics of attitudinal groups, January
2009
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