Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
Table of tables 4
A Review of the UK Mortgage Market in 2008 and 2009 5
2008 saw unprecedented turmoil in the UK mortgage market 5
The year started with predictions of a 'soft landing' for the economy and housing market 5
The onset of a severe recession further hit demand for mortgages 5
The Bank of England was slow to react to the deterioration in the economic climate 7
The supply of mortgage finance was affected by a dramatic worsening of credit conditions 8
Providers in the UK were not immune to the financial instability 9
These problems conspired to hamper the free flow of credit in the UK markets 9
Reductions in both demand and supply combined to squeeze gross lending in 2008 11
Lending for house purchases declined massively in 2008, reflecting the collapse in property sales 12
Lending fell sharply in terms of both the number and the value of approvals 13
To date, 2009 has been marked by the worst recession in decades 15
The Bank of England took drastic measures to stimulate the economy 15
Datamonitor forecasts total gross lending of £140 billion in 2009 16
Fears of a slow recovery for the economy as a whole 16
The supply of credit was further restricted in the first quarter, but increased in the second 17
Key trends and factors affecting the market 19
Falls in house prices have revived negative equity and aggravated the constriction of credit 19
House prices have fallen a long way from their peak in 2007 19
Negative equity makes an unwelcome return 20
House price falls are affecting credit supply 21
Sentiment on house prices has become more optimistic in the third quarter of 2009 22
Nationwide is tentatively predicting a year-on-year rise in prices by the end of 2009 22
Halifax data confirm upwards trend in prices 22
The Royal Institution of Chartered Surveyors becomes more upbeat 22
Other parties strike a more cautious note on prices 23
Consumers remain pessimistic about the state of the housing market 23
First time buyers have faced particular difficulties 25
Lenders are unwilling to offer high LTV mortgages 25
A third of consumers who want to buy a house in the next year will have to borrow from friends or family 27
The government and the industry have taken steps to help first time buyers 28
Providers have launched new products specifically for this market 28
The government raised the stamp duty threshold to help stimulate the market 29
The FTB market continued to decline throughout 2008, but started to recover in 2009 29
Arrears and repossessions are on the rise 30
The incidence of mortgages falling into arrears increased sharply in 2008 30
Repossessions also rose, but by less than expected 31
Datamonitor expects the incidence of arrears and repossessions to peak in 2010 31
The industry and other parties have taken steps to limit repossessions 33
The government has introduced its Mortgage Rescue Scheme but with limited success to date 33
Other government measures have sought to minimize the incidence of repossession 33
Consumers' confidence in their ability to meet repayments has been unaffected 33
Forecasts and figures 35
Historically low base rates have had a major impact on consumer and lender behavior 35
The type of mortgage chosen by borrowers has been driven by future rate expectations 35
The relationship between the base rate and mortgage rates has broken down 36
Low standard variable rates have reduced the incentive for homeowners to remortgage 39
Datamonitor expects gross lending to pick up gradually over the next few years 40
In the light of current volatility, Datamonitor has produced two alternative scenarios 41
The pessimistic scenario assumes a steep rise in unemployment and a continuing lack of credit 41
The optimistic scenario assumes a quicker economic recovery and a more rapid expansion of credit 43
Competitive Dynamics in the UK Mortgage Market 46
Lehman Brothers' collapse led to the mortgage market being marked by consolidation and government support 46
Consolidation and government intervention mark the 2008 mortgage market 46
Lloyds TSB merged with HBOS and the Lloyds Banking Group was born 47
Bradford & Bingley was nationalized, with Abbey buying its savings branch 47
The Britannia and Co-operative Financial Services merger partnered Britannia's mortgage product strength with the Co-op's extensive retail banking portfolio 47
The mortgage market looks very different from in 2007 48
The number of mortgage lenders operating in the UK market has declined over the last year 48
Most mortgage providers saw a fall in gross advances, while balances outstanding saw moderate growth 49
Only HSBC saw an increase in advances among the top 10 mortgage providers 49
Northern Rock dropped out of the top 10 mortgage providers in terms of gross lending 51
Customer retention rather than acquisition is the current focus 52
Balances outstanding increased in 2008, but at a slower rate than in previous years 52
The UK mortgage market is much smaller, but competition is beginning to heat up among the major players 54
HSBC's RateMatcher, combined with other attractive offerings, strengthens its acquisitions stance 54
First Direct introduces a unique flexible offset tracker mortgage 55
Woolwich responded to HSBC's pricing challenge with its own offering 55
Nationwide Building Society came to the aid of smaller building societies but more may struggle in the future 56
Monetary policy has been critical for preventing a complete credit drought 56
Base rates have been at their 300 year low for the last six months 56
The major lenders have decreased the rates on their two-year fixed rate mortgages, but the maximum LTVs have decreased 58
The future of the UK mortgage market looks eventful 59
Smaller players could see a return but they are likely to remain hamstrung by their access to funds 59
New players are emerging at the edges of the market, but the scale of their impact is still hard to ascertain 59
Interest rate increases could ignite the mortgage market 60
The Impact of Increased Arrears on UK Mortgage Providers 61
As the level of arrears increases, lenders need to find ways to help consumers 61
Around 1.88% of mortgages were in arrears at the end of 2008 61
The loss of one's job or the failure of one's business are the main drivers of arrears 62
Northern Rock's extravagant lending has led to arrears levels well above average 62
Datamonitor's Megatrends framework can provide more insight into why consumers fall into arrears 63
A lack of Financial Intelligence can hinder a consumer's ability to cope with financial uncertainty 63
Borrowers are looking for a degree of Comfort from their lender 63
The Wealth Complexity is another trend that can be used to explain how some consumers fall into arrears 63
Communication with borrowers is seen as a vital tool against increased arrears 64
Mortgage providers tend to supply advice leaflets with arrears statements 64
External debt counselors present a face-to-face option for banks 64
Some lenders direct borrowers towards Citizens Advice or the FSA's Money Made Clear online guides 64
Nationwide's website has debt advice that is much easier to find than most of its peers 65
Lloyds TSB provides advice for those who are or anticipate falling into arrears on its website 67
Special servicers help lenders to manage arrears more efficiently 67
Lenders have a variety of measures in place to help borrowers who are in arrears 68
Repossession is seen as a last resort as it can be costly for both parties 69
Repossession levels were lower than anticipated in 2008 69
A few lenders have introduced a controversial six-month delay on repossession orders 71
A delay in repossessions may not be entirely beneficial for the economy 71
Most lenders follow a standard process when taking possession of a property 71
Lenders are often forced to take a big write down when selling repossessed property 72
Some providers have noticed an increase in voluntary abandonment cases 72
Various regulatory measures are being introduced to reduce arrears and repossessions 73
The Homeowner Mortgage Support Scheme has been set up to help defer repayments 73
The Homeowner Mortgage Support Scheme does not go far enough 73
The Income Support for Mortgage Interest scheme has had an overhaul to make it more effective 74
The mortgage rescue scheme allows housing associations to rent property back 74
The Pre-action Protocol is a government initiative to further postpone repossessions 75
Borrowers need to be made aware that they have certain legal rights 75
There has been a call for laws to be relaxed that allow those in arrears more time to pay off the loan 75
The cut in stamp duty may have caused more problems than it has solved 76
An Analysis of First Time Buyers in the UK Mortgage Market 77
First-time buyers are the casualties of the house price boom 77
House prices grew by more than 230% over the period 1996-2007 77
First-time buyers have found their ability to buy a property significantly reduced in a soaring house price environment 78
FTBs' participation in the UK housing market has dropped significantly 79
The importance of first-time buyers in the UK mortgage market must not be underestimated 80
Buying a property remains problematic for first-time buyers despite house prices falling in 2008 81
Properties still remain unaffordable for FTBs in the current market conditions 81
The one-year stamp duty holiday is not enough 81
Many potential first-time buyers have little hope of ever buying a property 82
The most mentioned factor stopping prospective buyers to get on the property ladder is 'property is too expensive' 82
Homeownership remains a major goal for the UK population 83
The majority of the non-homeowners surveyed are willing to make sacrifices in order to possess their own home 84
The majority of the would-be homeowners surveyed are planning to fund their deposits out of their personal savings 85
Nearly a third of would-be FTBs believe that it would be very hard for them to service a mortgage for the next five years 86
First-time buyers' options are limited in the current difficult market climate 87
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 87
A handful of lenders, such as Halifax and Abbey, have introduced savings-related incentives for FTBs 88
The government is considering a tax-relief savings account for FTBs 89
The government has improved its shared equity schemes aimed at FTBs in 2008 89
Consumer Trends in the UK mortgage Market 90
Understanding the Megatrends framework is vital for any mortgage provider 90
A Megatrend framework is vital for lenders during the current climate 90
Greater customer understanding can help to overcome the obstacles encountered when targeting and communicating with customers 90
Consumers are no longer focusing solely on price when taking out a mortgage 92
There are four consumer Megatrends that have become apparent throughout the downturn 92
Comfort 92
Authenticity 92
Individualism 92
Financial Intelligence Complexity 93
Consumers are most worried about losing their house 94
Consumers are increasingly seeking out advice as they no longer feel confident in making their own financial decisions 94
Tackling financial intelligence is fundamental for the complicated nature of mortgages 94
Consumers tend to follow the masses when making large investment choices 95
But borrowers also want mortgage products that can suit their individual circumstances 96
Many major lenders appeal to Individualism consumer trend 97
Gearing lending towards FTBs will establish significant kudos from many new homebuyers 97
Abbey and Halifax have led the way for helping to get FTBs back onto the property ladder 99
Customers need mortgage lenders to be authentic and honest throughout the recession 99
Mortgage promotions need to be realistic 99
Most mortgage lenders fail to fully appeal to this trend 100
Mortgage lenders need to be more innovative in their product offering to appeal to these consumer trends 100
Lloyds TSB's 2012 mortgage product may appeal to ethical borrowers 100
Examples from abroad have highlighted how UK lenders can improve their messages 101
The Future of Remortgaging 103
The level of remortgaging in the market has declined since its peak in 2007 103
Remortgaging gross advances have dropped less rapidly than house purchase advances 103
The decline in gross lending came as a result of a decline in all forms of lending 104
The buy-to-let market saw huge falls in gross lending between Q3 2007 and Q2 2009 105
Competition among lenders is low and is likely to remain so in the near future 106
The level of competition in the market is low but the re-entry of Northern Rock has boosted the market 106
The big lenders have been the most successful at attracting new remortgage business 107
Prior to the crunch lenders priced remortgaging deals to make minimal margins 108
The SVR has reached a point where it has become favorable for consumers to stay put 108
The average tracker rate is the most competitive rate but SVRs continue to fall 108
There has been some recent movement back onto fixed-rate deals 109
A dearth of remortgaging activity could hamper a recovery 110
Brokers are traditionally strong in the remortgaging market 111
Lenders in difficulty are paying borrowers to take their business elsewhere 111
Innovation in remortgaging has been minimal since the credit crunch began 111
Remortgage calculators are available on some websites 111
HSBC has reintroduced its rate matcher deal to boost remortgaging 112
Lenders have been looking to attract more borrowers onto offset mortgages 112
Lenders are offering four-year fixed terms 114
Banks are taking steps to reduce the costs faced by borrowers when remortgaging 114
Innovation is likely to return once the market has recovered sufficiently 115
Consumers are weighing up their options regarding remortgaging 115
According to some sources the number of consumers seeking remortgage advice has risen 115
Over the last 12 months more borrowers switched than reverted to their standard variable rate 115
The share of new mortgages on new property is generally lower the more recently the mortgage was arranged 116
The majority of consumers do not intend to remortgage over the next six months 117
With falling house prices equity release has fallen 118
Consumers are substituting savings for paying off debts 119
Datamonitor forecasts that the market for remortgaging will recover during 2011 119
Recovery will begin in 2011 119
A rising base rate will see borrowers rushing onto fixed deals 121
There is unlikely to be a movement away from remortgaging products in the future 121
APPENDIX 122
Supplementary data 122
A Review of the UK Mortgage Market in 2008 and 2009 122
Competitive Dynamics in the UK Mortgage Market 139
The Impact of Increased Arrears in the UK Mortgage Market 141
An Analysis of First Time Buyers in the UK Mortgage Market 142
The Future of Remortgaging 147
Definitions 153
Balances outstanding 153
Bank of England base rate 153
Buy-to-let 153
CAGR 153
Equity 153
Fixed rate mortgage 153
Gross advances 153
LIBOR 153
Loan-to-value 153
Mortgage intermediary 153
Non-standard and sub-prime 154
Remortgaging 154
Sub-prime 154
Title insurance 154
Tracker mortgage 154
Variable mortgage 154
Methodology 154
Forecasting methodology 155
Further reading 155
Ask the analyst 155
Datamonitor consulting 156
Disclaimer 156
List of Tables
Table 1: Forecast arrears and repossessions under the Datamonitor view, 2009-2013 32
Table 2: Forecast gross advances under the Datamonitor view, 2009-2013 41
Table 3: Forecast gross advances under the pessimistic view, 2009-2013 43
Table 4: Forecast gross advances under the optimistic view, 2009-2013 44
Table 5: Two-year fixed rate products by mortgage lenders 58
Table 6: Datamonitor forecast of remortgaging and the total mortgage market, 2007-13f 120
Table 7: Quarterly changes in UK GDP (% change compared to previous quarter) 122
Table 8: Number of approvals for house purchase 123
Table 9: Bank of England base rate (%) 124
Table 10: Quarterly changes in credit availability and scoring criteria 126
Table 11: Annual gross lending (£m) 126
Table 12: Annual gross lending by product line (£m) 126
Table 13: Number and value of all mortgage approvals, by month 127
Table 14: Monthly gross lending (£m) 128
Table 15: Factors affecting availability of secured credit 128
Table 16: Nationwide and Halifax prices indices, monthly and annual changes 129
Table 17: Impact of house price expectations on availability of credit 130
Table 18: Consumer confidence in strength of housing market compared to a year ago 130
Table 19: Consumer expectations of strength of housing market over next 12 months 130
Table 20: Net balance of lenders reporting increase in availability of high LTV mortgages 131
Table 21: Average rates for two year fixed-rate mortgages of 75% and 90%/95% LTV 132
Table 22: Consumer attitudes on perceived difficulties in raising mortgage finance 133
Table 23: First time buyer loans 134
Table 24: Annual arrears and repossessions 135
Table 25: Level of consumer concern about ability to meet repayments 135
Table 26: Type of mortgage 135
Table 27: Base rates, LIBOR, swap rates, average mortgage rates from 2007 to 2009 136
Table 28: Net balance of lender reporting increase in spreads for different categories of mortgage 137
Table 29: Monthly mortgage approvals 138
Table 30: Comparison of mortgage rates, Libor and two-year swap rates. September 2008-September 2009 139
Table 31: Top 15 lenders by total mortgage lending, market shares for 2007 and 2008 140
Table 32: Top 15 lenders by total mortgages balances outstanding, market shares for 2007 and 2008 140
Table 33: % of all mortgages at least three months in arrears 141
Table 34: % of all mortgages taken into possession during each half yearly period 141
Table 35: FTBs' house price to earnings ratio and index of mortgage repayments as a % of take home pay, 1996-2007 142
Table 36: Number of loans accounting for FTBs, 1988-2007 143
Table 37: How long do you think it will be until you buy your first home? 143
Table 38: What is stopping you from purchasing property? 144
Table 39: Why are you looking to purchase a property? 144
Table 40: In order to own your home what would you expect to sacrifice? 145
Table 41: How are you planning to finance the deposit to buy your property? 145
Table 42: How difficult do you think it would be for you to service a mortgage for the next five years? 146
Table 43: Which of the following would help you most to buy your first property? 146
Table 44: Annual gross advances for house purchase and remortgaging, 2000-08 147
Table 45: Quarterly gross advances split by type, Q1 2005-Q2 2009 148
Table 46: Buy-to-let quarterly gross advances, Q3 2006-Q2 2009 148
Table 47: Remortgaging activity by brand of lender 149
Table 48: Average monthly rate for different types of mortgage product, January 2007-June 2009 150
Table 49: Number of different types of loan advanced on a monthly basis, January 2007-June 2009 151
Table 50: Action that best describes situation over the last 12 months 152
Table 51: The impact of the time when the mortgage was arranged on the type of mortgage activity 152
Table 52: Likelihood of remortgaging over the next six months 152
List of Figures
Figure 1: UK GDP started to decline in the second quarter of 2008 6
Figure 2: Approvals for house purchase fell sharply from mid-2007 to the end of 2008 7
Figure 3: The Bank of England base rate remained at relatively high levels until the final quarter of 2008 8
Figure 4: Severe tightening of mortgage credit availability and lending criteria throughout 2008 10
Figure 5: After strong growth in 2006-07, gross lending fell sharply in 2008 12
Figure 6: Lending for house purchases has been worst affected by the downturn 13
Figure 7: Mortgage approvals are on a downward trend, in terms of both value and time 14
Figure 8: Gross lending remains very subdued in first half of 2009 16
Figure 9: Factors affecting availability of secured credit started to recover in the second quarter of 2009 18
Figure10: House price indices show negative annual growth from early 2008 onwards 20
Figure 11: Expectations of house price falls have contributed to a reduction in secured credit availability 21
Figure 12: Consumer confidence in housing market has been badly affected 24
Figure 13: Consumer expectations for housing market over the next 12 months are conservative 25
Figure 14: The number of 75%+ LTV mortgages fell massively in the wake of the credit crunch 26
Figure 15: High-LTV mortgages have become relatively more costly than low-LTV mortgages 27
Figure 16: A sizeable proportion of prospective buyers have experienced, or anticipate experiencing, difficulties in obtaining mortgages 28
Figure 17: The number and value of FTB loans have been on a downward trend 30
Figure 18: There was a marked increase in mortgage arrears in 2008 31
Figure 19: Arrears and repossessions will peak in 2010 before falling back 32
Figure 20: The credit crunch has not affected consumers' confidence in ability to repay their mortgages 34
Figure 21: Tracker mortgages rose in popularity in 2008 and 2009 36
Figure 22: Steep rise in differential between mortgage rates and LIBOR, swap rates 37
Figure 23: Secured lending spreads have increased across all categories of loan 38
Figure 24: Approvals for remortgaging fell sharply in the wake of base rate cuts in late 2008 39
Figure 25: The Datamonitor view is that gross lending will recover gradually to a level of £220 billion in 2013 40
Figure 26: The pessimistic forecast sees gross lending rising to only £185 billion by 2013 42
Figure 27: In the optimistic scenario, gross lending rises to £245 billion in 2013, just a short way off the 2008 total 44
Figure 28: Gross mortgage advances fell by 30%, with only HSBC and the Bank of Ireland seeing increases 50
Figure 29: Only Bradford & Bingley saw a decline in market share among the top 10 lenders 51
Figure 30: Most large lenders increased their balances outstanding, with the exception of Northern Rock 53
Figure 31: Mortgage rates have fallen but have failed to keep up with base rate cuts 57
Figure 32: The percentage of mortgages in arrears grew significantly in Q4 2008 62
Figure 33: The FSA's Money made clear guides offer clear advice on all mortgage-related issues 65
Figure 34: Nationwide's website provides a convenient source of information on useful debt advice bodies 66
Figure 35: Lloyds TSB stresses the importance of action on the part of those facing financial difficulty 67
Figure 36: The percentage of properties taken into possession in H1 2008 was 0.16% 69
Figure 37: The average UK house price has more than trebled during the period 1996-2007 78
Figure 38: 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 79
Figure 39: Loans advanced to FTBs accounted for only 35.2% of total loans for house purchase in 2007 80
Figure 40: More than a third of the respondents cannot imagine of ever buying a property, August 2008 82
Figure 41: 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 83
Figure 42: 48.4% stated 'to get on the property ladder' as a reason for looking to purchase a property, August 2008 84
Figure 43: An overwhelming majority of the surveyed participants would make sacrifices in order to possess their own home, August 2008 85
Figure 44: Prospective buyers are planning to fund their deposits mostly out of their personal savings, August 2008 86
Figure 45: 65.4% of would-be FTBs believe it would be difficult for them to service a mortgage for the next five years, August 2008 87
Figure 46: 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 88
Figure 47: A financial services company can pitch its level of customer understanding at various stages depending on the company's sophistication 91
Figure 48: Consumers are most likely to consider major mortgage players such as HBOS and Abbey when taking out a new mortgage, 2008 96
Figure 49: The average LTV across all products has fallen from 85.2% to 78.5%, 2007-08 98
Figure 50: Lloyds TSB's 2012 mortgage appeals to a borrower who supports the Great Britain Olympic team, 2009 101
Figure 51: Remortgaging gross advances saw a moderate fall between 2007 and 2008 104
Figure 52: The overall market peaked in Q3 2007 before falling away, remortgaging fell quickly from Q3 2008 105
Figure 53: Buy-to-let remortgage gross advances fell by 87% between Q3 2007 and Q2 2009 106
Figure 54: Barclays/Woolwich has been the most successful at attracting new remortgage business 107
Figure 55: The average standard variable rate has been lower than the average fixed rate since November 2008 109
Figure 56: The majority of borrowers are still taking out fixed-rate loans 110
Figure 57: Remortgage calculators facilitate the complex calculations involved in remortgaging 112
Figure 58: Woolwich outlines the differences between a normal mortgage and an offset one 114
Figure 59: Over the last 12 months more borrowers remortgaged than reverted onto their lender's SVR 116
Figure 60: The share of remortgaging as a percentage of new mortgage activity has fallen in the last six months 117
Figure 61: Less than one fifth of respondents are likely to remortgage during the next six months 118
Figure 62: The total mortgage market will recover sooner than the remortgaging market 120
