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Mortgages - UK - April 2011

The mortgage market has been heavily affected by the credit crunch, with liquidity being severely reduced, and lending being restricted as a result. Banks have tightened their lending criteria considerably over the last few years, due to a lower risk tolerance, as well as tighter mortgage capital requirements. The good news is that the market stabilised in 2010, as lenders adjusted to the post-credit crunch environment. The bad news is that lending remains heavily subdued, while the downside risk of rising unemployment and a weak housing market prevails.

  • Remortgages are likely to be a significant growth area for lenders this year, as speculation mounts over a rise in interest rates. Indeed, Barclays and Nationwide have already launched Switch & Fix propositions to capitalise on consumer anxiety here.
  • From conversations with lenders, most are taking some respite from the fact that the market stabilised last year (gross advances fell by just 6%), which is believed to be down to lenders adjusting their business models to the post-credit crunch environment.
  • Lenders can at least take some encouragement from the fact while lending volumes may be low at present, profitability has increased. At the same time, overall risk profiles on new lending have fallen, suggesting a strong mortgage book in years to come.
  • Indeed, there has been some very positive innovation in the FTB sector of late, mostly involving shared-ownership schemes and tie-ups with developers. To this end, Lloyds TSB recently launched a revamped version of its Lend a Hand scheme involving five local authorities, while Barclays launched the Perfect 10 mortgage in conjunction with Bovis.
  • Older people appear to be the best target at present. Not only are they likely to have more equity in their homes (ie lower risk), they are more confident about property generally and are less likely to think they'd struggle to get a new mortgage in the current climate.
  • There may be some pent up demand from frustrated FTBs, as our consumer research shows that confidence in property remains high and that the proportion of people either saving up for or intending to buy their first home has increased during the last 12 months.

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Table of contents

  1. Introduction

      • Market definitions
        • Abbreviations
        • Issues in the Market

            • When will the mortgage market return to “normal”?
              • Why are lending criteria still tight?
                • How will consumers react to interest rate rises?
                  • How do consumers feel about the market at present?
                    • Has the slowdown prompted a new wave of innovation?
                    • Executive Summary

                        • The market
                          • Figure 1: Forecast of gross mortgage advances, 2005-15
                        • The market stabilised in 2010
                          • House purchase loans up, remortgage activity down
                            • Market factors
                              • Weak levels of activity, but some improvements
                                • Regulatory challenges on the horizon
                                  • Economic uncertainty is a major concern for lenders
                                    • Companies, brands and innovation
                                      • Figure 2: Top six mortgage lenders, by gross advances, 2009 and 2010
                                    • The top six dominate the market
                                      • Mortgage adspend has fallen considerably
                                        • Nationwide is the most trusted brand
                                          • Figure 3: Attitudes towards and usage of mortgage brands, December 2010
                                        • Innovation concentrated on the FTB sector
                                          • The consumer
                                            • Figure 4: Property and mortgage ownership, 2006-11
                                          • A third of UK adults have a mortgage
                                            • Homeowners favour fixed rate deals at present
                                              • Figure 5: House moving and mortgage intentions, January 2011
                                            • People still regard property as a good investment
                                              • What we think
                                              • Future Opportunities

                                                  • Capitalising on current market uncertainty
                                                    • An opportunity for intermediaries to ‘sell’ advice
                                                    • Internal Market Environment

                                                      • Key points
                                                        • Low interest rates but high margins
                                                          • Figure 6: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, Jan 2005-Dec 2010
                                                        • Mortgage approvals remain at low levels…
                                                          • Figure 7: Number of mortgage approvals (SA), by type, Jan 2007-Nov 2010
                                                        • … as do the number of property transactions
                                                          • Figure 8: Number of £40,000+ UK residential property transactions (SA), Q1 2007-Q3 2010
                                                        • Lenders are still demanding higher deposits
                                                          • Figure 9: Mortgage payment as a proportion of income and deposit as a proportion of price, by type of borrower, 1990-2010
                                                        • Arrears and repossessions have increased
                                                          • Figure 10: Mortgage arrears and repossessions, Q1 2008-Q3 2010
                                                        • Signs that lending criteria are starting to ease
                                                          • Figure 11: Number of mortgage products available, by LTV band, April 2009 vs. April 2010
                                                        • Measures to improve liquidity are about to expire
                                                          • Schemes to support homeowners
                                                            • New intermediary guide launched
                                                              • Regulatory issues
                                                                • Tighter rules on capital requirements
                                                                  • The draft European Mortgage Directive
                                                                    • The Mortgage Market Review
                                                                      • Concerns about the proposed responsible lending rules
                                                                        • Concerns about the proposed distribution and disclosure rules
                                                                          • Enhanced measures to protect customers in arrears
                                                                          • Broader Market Environment

                                                                            • Key points
                                                                              • A flat market may deter new purchase activity
                                                                                • Figure 12: Annual house price growth in the UK – comparison of four different sources, Q1 2007-Q3 2010
                                                                              • Write-offs have fallen back…
                                                                                • Figure 13: Quarterly write-offs of secured lending to individuals, Q1 2007-Q3 2010
                                                                              • … but another rise in unemployment may increase defaults
                                                                                • Figure 14: UK unemployment rate, Q1 2005-Q4 2010
                                                                              • Some homeowners have benefited from low interest rates
                                                                                • Figure 15: Trends in statements relating to mortgages and the economic downturn, Feb 2009-Feb 2011
                                                                              • Spending cuts have dented consumer confidence
                                                                                • Figure 16: Monthly, 3-monthly and 12-monthly UK consumer confidence indices, Jan 1982-Dec 2010
                                                                              • Expected borrowing activity remains at low levels…
                                                                                • Figure 17: Savings, investment, borrowing and debt repayment – consumers’ expected activity, June 2002-December 2010
                                                                              • … as does expected mortgage activity
                                                                                • Figure 18: Expected mortgage and property purchase activity, Q3/Q4 2002-Q4 2010/Q1 2011
                                                                            • Competitive Context

                                                                              • Key points
                                                                                • The continued growth of the private rented sector
                                                                                  • Figure 19: Housing stock in England, by tenure, 1981-2008/09
                                                                                • Long-term aspirations of home ownership remain high
                                                                                • SWOT Analysis

                                                                                    • Figure 20: The UK mortgage market – SWOT analysis, 2011
                                                                                • Who’s Innovating?

                                                                                  • Key points
                                                                                    • More innovative products aimed at FTBs
                                                                                      • The ‘perfect’ solution from Barclays and Bovis Homes
                                                                                        • Lloyds TSB ‘lends a hand’ to FTBs
                                                                                          • TMW launches a range of guarantor mortgages
                                                                                            • Barratt Homes launches a new proposition with Hitachi Capital
                                                                                              • Switch and fix deals from Barclays and Nationwide
                                                                                                • Barclays tries to tempt people off competitors’ SVR
                                                                                                • Market Size and Forecast

                                                                                                  • Key points
                                                                                                    • Gross advances stabilised in 2010
                                                                                                      • Figure 21: Gross mortgage advances, 2005-10
                                                                                                    • Specialist lenders have been the hardest hit
                                                                                                      • Figure 22: Gross mortgage lending, by type of lender, 2005-10*
                                                                                                    • House purchase loans picked up in 2010…
                                                                                                      • Figure 23: Gross mortgage lending, by type of loan, 2005-10
                                                                                                    • … although this was not due to increased FTB activity
                                                                                                      • Figure 24: Loans for house purchase, by type of borrower, 2005-10
                                                                                                    • Variable rate mortgages have become more popular
                                                                                                      • Figure 25: Type of mortgage held, 2008-10
                                                                                                    • Forecast
                                                                                                      • Gross advances are expected to stay flat for the time being
                                                                                                        • Figure 26: Forecast of gross mortgage advances, 2005-15
                                                                                                        • Figure 27: Forecast of gross mortgage advances, 2005-15
                                                                                                      • Forecast methodology
                                                                                                      • Market Share

                                                                                                        • Key points
                                                                                                          • Top six lenders control more than 70% of the market
                                                                                                            • Figure 28: Top six mortgage lenders, by amounts outstanding, 2009 and 2010
                                                                                                          • Lloyds Banking Group leads the market in terms of new lending
                                                                                                            • Figure 29: Top six mortgage lenders, by gross advances, 2009 and 2010
                                                                                                          • Tighter lending criteria prompt a decline in switching
                                                                                                            • Figure 30: Proportion of people who have changed their mortgage provider in the last year, 2006-10
                                                                                                        • Companies and Products

                                                                                                          • Barclays/Woolwich
                                                                                                            • HSBC
                                                                                                              • Lloyds Banking Group
                                                                                                                • Nationwide
                                                                                                                  • RBS Group
                                                                                                                    • Santander
                                                                                                                    • Brand Communication and Promotion

                                                                                                                      • Key points
                                                                                                                        • Total sector adspend has halved since 2006/07
                                                                                                                          • Figure 31: Total mortgage adspend, by sub-category, 2006/07-2009/10
                                                                                                                        • Lloyds Banking Group is the biggest advertiser
                                                                                                                          • Figure 32: Total mortgage adspend, by company (top 10), 2008/09-2009/10
                                                                                                                        • A noticeable shift in advertising strategy
                                                                                                                          • Figure 33: Total mortgage adspend, by media type, 2006/07-2009/10
                                                                                                                        • A seasonal market with seasonal advertising
                                                                                                                          • Figure 34: Monthly total mortgage adspend, 2009
                                                                                                                        • Note on adspend data
                                                                                                                        • Brand Research

                                                                                                                          • Brand map
                                                                                                                              • Figure 35: Attitudes towards and usage of mortgage brands, December 2010
                                                                                                                            • Brand attitudes
                                                                                                                              • Figure 36: Attitudes towards mortgage brands, December 2010
                                                                                                                            • Brand personality
                                                                                                                              • Figure 37: Mortgage brand personality – macro image, December 2010
                                                                                                                              • Figure 38: Mortgage brand personality – micro image, December 2010
                                                                                                                            • Correspondence analysis
                                                                                                                              • Brand experience
                                                                                                                                • Figure 39: Mortgage brand usage, December 2010
                                                                                                                                • Figure 40: Satisfaction with various mortgage brands, February 2010
                                                                                                                                • Figure 41: Consideration of mortgage brands, December 2010
                                                                                                                                • Figure 42: Consumer perceptions of current mortgage brand performance, December 2010
                                                                                                                                • Figure 43: Mortgage brand recommendation – Net Promoter Score, December 2010
                                                                                                                              • Brand index
                                                                                                                                • Figure 44: Mortgage brand index, December 2010
                                                                                                                                • Figure 45: Mortgage brand index vs. recommendation, December 2010
                                                                                                                              • Target group analysis
                                                                                                                                • Figure 46: Target groups, December 2010
                                                                                                                                • Figure 47: Mortgage brand usage, by target groups, December 2010
                                                                                                                              • Group One – The Conformists
                                                                                                                                • Group Two – Simply the Best
                                                                                                                                  • Group Three – Shelf Stalkers
                                                                                                                                    • Group Four – Habitual Shoppers
                                                                                                                                      • Group Five – The Individualists
                                                                                                                                      • Channels to Market

                                                                                                                                        • Key points
                                                                                                                                          • The squeeze on intermediaries continues…
                                                                                                                                            • Figure 48: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2009/10
                                                                                                                                          • … with the number of firms having fallen significantly
                                                                                                                                            • Figure 49: Number of mortgage/home finance appointed representatives and directly authorised intermediary firms, by type, Sep 2006-Sep 2010
                                                                                                                                          • The impact of the FSA’s recent MMR proposals
                                                                                                                                            • TGI data confirms the growth of direct sales
                                                                                                                                              • Figure 50: Method used to arrange last mortgage, 2006-10
                                                                                                                                          • Property Ownership and Buying Intentions

                                                                                                                                            • Key points
                                                                                                                                              • A third of UK adults have a mortgage
                                                                                                                                                • Figure 51: Property and mortgage ownership, 2006-11
                                                                                                                                              • Mortgage ownership is most common amongst 35-54-year-olds
                                                                                                                                                • Figure 52: Property ownership, by demographics, January 2011
                                                                                                                                              • More young people are saving for their first home
                                                                                                                                                • Affluence is directly related to mortgage penetration
                                                                                                                                                • Expected House Price Movement

                                                                                                                                                  • Key points
                                                                                                                                                    • Expectations of a flat or declining market in 2011
                                                                                                                                                      • Figure 53: Expected house price growth, January 2011
                                                                                                                                                    • Potential buyers are most likely to anticipate growth
                                                                                                                                                      • Figure 54: Expected house price growth, by property ownership and buying intentions, January 2011
                                                                                                                                                    • Older consumers are more negative about house prices
                                                                                                                                                      • Figure 55: Most popular expected house price growth, by age and socio-economic group, January 2011
                                                                                                                                                  • Future Moving Plans

                                                                                                                                                    • Key points
                                                                                                                                                      • Half of all homeowners have no plans to move
                                                                                                                                                        • Figure 56: House moving and mortgage intentions, January 2011
                                                                                                                                                      • Potential movers envisage declining house prices
                                                                                                                                                        • Figure 57: Expected house price growth, by house moving and mortgage intentions, January 2011
                                                                                                                                                      • Fixed rate deals more popular than tracker/variable deals
                                                                                                                                                        • Younger homeowners prefer fixed rate mortgages
                                                                                                                                                        • Attitudes Towards Property and the Mortgage Market

                                                                                                                                                          • Key points
                                                                                                                                                            • Most think property is still a good long-term investment…
                                                                                                                                                              • Figure 58: Attitudes towards property and the mortgage market, January 2011
                                                                                                                                                            • … with older people being particularly positive
                                                                                                                                                              • Figure 59: Attitudes towards property and the mortgage market, by demographics, January 2011
                                                                                                                                                            • Engaging with younger consumers
                                                                                                                                                              • Wealthy professionals most likely to overpay their mortgage
                                                                                                                                                                • Non-homeowners are jittery in the current climate
                                                                                                                                                                  • Figure 60: Attitudes towards property and the mortgage market, by property ownership and buying intentions, January 2011
                                                                                                                                                                • Growth in house prices linked to mortgage market conditions
                                                                                                                                                                  • Figure 61: Attitudes towards property and the mortgage market, by expected house price movement, January 2011
                                                                                                                                                                • Proactively targeting potential movers
                                                                                                                                                                  • Figure 62: Attitudes towards property and the mortgage market, by house moving intentions, January 2011
                                                                                                                                                              • Targeting Opportunities

                                                                                                                                                                • Key points
                                                                                                                                                                  • Methodology
                                                                                                                                                                    • Figure 63: Target groups, January 2011
                                                                                                                                                                  • The over-optimistic Hopeful Minority?
                                                                                                                                                                    • Figure 64: Expected house price movement, by target groups, January 2011
                                                                                                                                                                  • The Neutrals are confident in their own financial situation
                                                                                                                                                                    • Figure 65: Attitudes towards property and the mortgage market, by target groups, January 2011
                                                                                                                                                                  • The Hopeful Minority are more likely to consider buying
                                                                                                                                                                    • Figure 66: Property ownership and buying intentions, by target groups, January 2011
                                                                                                                                                                  • The Neutrals are least likely to consider moving
                                                                                                                                                                    • Figure 67: House moving and mortgage intentions, by target groups, January 2011
                                                                                                                                                                  • Young adults are trying to be optimistic
                                                                                                                                                                    • Figure 68: Target groups, by demographics, January 2011
                                                                                                                                                                • Appendix – Forecast

                                                                                                                                                                    • Figure 69: Forecast of gross mortgage advances – worst and best case scenarios, 2010-15
                                                                                                                                                                • Appendix – Market Share

                                                                                                                                                                    • Figure 70: Lenders’ share of the mortgage market, by amounts outstanding, 2008 and 2009
                                                                                                                                                                    • Figure 71: Lenders’ share of the mortgage market, by gross advances, 2008 and 2009
                                                                                                                                                                • Appendix – Property Ownership and Buying Intentions

                                                                                                                                                                    • Figure 72: Property ownership and buying intentions, January 2011
                                                                                                                                                                    • Figure 73: Property ownership and buying intentions, by demographics, January 2011
                                                                                                                                                                    • Figure 74: Property ownership and buying intentions, by demographics, January 2011 (continued)
                                                                                                                                                                    • Figure 75: Property ownership and buying intentions, by demographics, January 2011 (continued)
                                                                                                                                                                • Appendix – Expected House Price Movement

                                                                                                                                                                    • Figure 76: Expected house price movement, by demographics, January 2011
                                                                                                                                                                • Appendix – Future Moving Plans

                                                                                                                                                                    • Figure 77: House moving and mortgage intentions, by demographics, January 2011
                                                                                                                                                                    • Figure 78: House moving and mortgage intentions, by demographics, January 2011 (continued)
                                                                                                                                                                    • Figure 79: House moving and mortgage intentions, by demographics, January 2011 (continued)
                                                                                                                                                                • Appendix – Attitudes Towards Property and the Mortgage Market

                                                                                                                                                                    • Figure 80: Attitudes towards property and the mortgage market, by demographics, January 2011
                                                                                                                                                                • Appendix – Targeting Opportunities

                                                                                                                                                                    • Figure 81: Target groups, by demographics, January 2011

                                                                                                                                                                Companies Covered

                                                                                                                                                                • Abbey
                                                                                                                                                                • Alliance & Leicester
                                                                                                                                                                • Asda Group Ltd
                                                                                                                                                                • Association of British Insurers
                                                                                                                                                                • Association of Mortgage Intermediaries
                                                                                                                                                                • Aviva Plc
                                                                                                                                                                • Bank of England
                                                                                                                                                                • Bank of Ireland
                                                                                                                                                                • Barclays Bank plc
                                                                                                                                                                • Birmingham Midshires
                                                                                                                                                                • Bradford & Bingley plc
                                                                                                                                                                • British Bankers' Association (BBA)
                                                                                                                                                                • Cheltenham & Gloucester plc
                                                                                                                                                                • Churchill Insurance
                                                                                                                                                                • Citizens Advice Bureau
                                                                                                                                                                • Clydesdale Bank
                                                                                                                                                                • Co-operative Group
                                                                                                                                                                • Council of Mortgage Lenders
                                                                                                                                                                • Coventry Building Society
                                                                                                                                                                • Direct Line Group Limited
                                                                                                                                                                • Financial Services Authority (The)
                                                                                                                                                                • First Direct
                                                                                                                                                                • Firstplus Financial Group
                                                                                                                                                                • Freeview
                                                                                                                                                                • Gfk NOP
                                                                                                                                                                • Grupo Santander Central Hispano S.A.
                                                                                                                                                                • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                • Hitachi Capital (UK) PLC
                                                                                                                                                                • HSBC Investments (UK) Limited
                                                                                                                                                                • ING Direct
                                                                                                                                                                • J. Sainsbury
                                                                                                                                                                • Jardine Lloyd Thompson Group plc
                                                                                                                                                                • John Gilbert Financial Research
                                                                                                                                                                • Kantar Media
                                                                                                                                                                • Land Registry
                                                                                                                                                                • Legal & General Group PLC
                                                                                                                                                                • Lloyds Banking Group
                                                                                                                                                                • Market & Opinion Research International (MORI)
                                                                                                                                                                • Marks & Spencer
                                                                                                                                                                • National Savings & Investments
                                                                                                                                                                • Nationwide Building Society
                                                                                                                                                                • NatWest
                                                                                                                                                                • Northern Rock plc
                                                                                                                                                                • Office for National Statistics
                                                                                                                                                                • Paragon Mortgages
                                                                                                                                                                • Post Office Limited
                                                                                                                                                                • Royal Bank of Scotland Group plc
                                                                                                                                                                • Scottish Widows Bank plc
                                                                                                                                                                • Shelter
                                                                                                                                                                • Tesco Plc
                                                                                                                                                                • The Royal Institution of Chartered Surveyors
                                                                                                                                                                • UCB Home Loans
                                                                                                                                                                • Waitrose
                                                                                                                                                                • Wm Morrison Supermarkets
                                                                                                                                                                • Woolwich plc
                                                                                                                                                                • Yorkshire Bank PLC

                                                                                                                                                                Mortgages - UK - April 2011

                                                                                                                                                                £1,995.00 (Excl.Tax)