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Mortgages - UK - March 2012

“The mortgage market looks set to tread water for the time being with no major increases or decreases expected in mortgage take-up or property prices. Mortgage providers, however must brace themselves for a difficult time as the government looks to clamp down further on risky lending and potentially limit high LTV loans. Innovation is the key to success in times like these. On the downside however, some mortgage providers are starting to increase their standard variable rates as they look to improve their liquidity position which may see many home owners struggle to find the extra cash needed for mortgage payments.”

– Stephanie Seenan, Financial Services Analyst

Some questions answered in this report include:

  • What are the main threats to the mortgage industry in 2012?
  • Will there be a return to favour of 3-year and 5-year fixed rate mortgages?
  • Will the rental market increase in popularity as the mortgage market struggles?
  • What will the impact of changes to mortgage lending rules be?
  • What measures can be taken to boost the mortgage market?

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Table of contents

  1. Introduction

      • Market definitions
        • Abbreviations
        • Issues in the Market

            • What are the main threats to the mortgage industry in 2012?
              • Will there be a return to favour of 3-year and 5-year fixed rate mortgages?
                • Will the rental market increase in popularity as the mortgage market struggles?
                  • What will the impact of changes to mortgage lending rules be?
                    • What measures can be taken to boost the mortgage market?
                    • Executive Summary

                        • The market
                          • Figure 1: Forecast of gross mortgage advances, 2006-16
                        • Market factors
                          • Figure 2: Annual house price growth in the UK – comparison of four different sources, Q1 2007-Q3 2011
                        • Companies, products and innovation
                          • Market share
                            • Figure 3: Top six mortgage lenders, by gross advances, 2011
                          • Brand research
                            • Figure 4: Attitudes towards and usage of brands in the mortgage sector, January 2012
                          • The consumer
                            • Mortgage application intentions
                              • Figure 5: Mortgage application intentions, January 2012
                            • Influencing factors when choosing a mortgage provider
                              • Figure 6: Factors influencing mortgage provider choice, January 2012
                            • Attitudes towards mortgages
                              • Figure 7: Attitudes towards mortgages, January 2012
                            • Property price expectations
                              • Figure 8: Expected property price performance, January 2012
                            • Preferred method of mortgage arrangement
                              • Figure 9: Preferred method of arrangement, January 2012
                            • What we think
                            • Future Opportunities

                              • Mortgage providers must recognise the need for the human touch
                                • Consumers owe it to themselves to learn about mortgage options
                                • Internal Market Environment

                                  • Key points
                                    • Bank of England base rate remains flat
                                      • Figure 10: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, January 2005-December 2011
                                    • Number of mortgage products increases…
                                      • Figure 11: Number of mortgage products available, by LTV band, Feb 2008-Sep 2011
                                    • … but no major changes in number of mortgage approvals
                                      • Figure 12: Number of mortgage approvals (SA), by type, Jan 2007-Nov 2011
                                    • Number of residential property transactions stable
                                      • Figure 13: Number of £40,000+ UK residential property transactions (SA), Q1 2007-Q1 2011
                                    • 2011 arrears and repossession rates flat in 2011
                                      • Figure 14: Mortgage arrears and repossessions, Q1 2008-Q3 2011
                                    • MMR lending rules from the FSA being finalised
                                      • A positive outlook for 2012 is hard to come by
                                        • Longer term forecasts lack conviction
                                          • Government has suggested a cap on LTV ratio
                                            • Changes to stamp duty threshold will make it harder still for first-time buyers
                                              • First-time buyers rush to beat stamp duty holiday expiry
                                                • Figure 15: First time buyers, lending and affordability
                                            • Broader Market Environment

                                              • Key points
                                                • House prices remain flat
                                                  • Figure 16: Annual house price growth in the UK – comparison of four different sources, Q1 2007-Q3 2011
                                                  • Figure 17: Quarterly write-offs of secured lending to individuals, Q1 2007-Q3 2011
                                                • Rise in unemployment is bad news for mortgage providers
                                                  • Figure 18: UK unemployment rate, Q1 2005-Q3 2011
                                                • Customer confidence is not improving
                                                  • Figure 19: GFK NOP Consumer Confidence Index, January 1988-December 2011
                                                • Total number of UK households set to grow…
                                                  • Figure 20: UK households, by size, 2006-16
                                                • … but the housing supply isn’t keeping up
                                                  • Growing level of retirees could create market for equity release mortgages
                                                    • Figure 21: Forecast adult population trends, by lifestage, 2006-16
                                                  • The housing market is seasonal
                                                    • Figure 22: UK residential property transaction counts, by month, 2006-11
                                                • Competitive Context

                                                  • Key points
                                                    • Private renting is the only alternative to home ownership
                                                      • Figure 23: Housing stock in England, by tenure, 1981-2011
                                                    • Is the UK housing market set for a more continental approach?
                                                      • Private renting has many advantages over home ownership…
                                                        • … yet home ownership remains a goal for many
                                                          • The advantages of home ownership over private renting
                                                          • SWOT Analysis

                                                            • Who’s Innovating?

                                                              • Key points
                                                                • First-time buyers/high LTV % innovations
                                                                  • Halifax offers no-fee mortgage to FTBs
                                                                    • Co-op Bank cuts five year fixed mortgage rates
                                                                      • HSBC offers sub-4% interest rate on 90% LTV mortgages
                                                                        • Ipswich offers 95% LTV mortgage
                                                                          • Mobile app innovations
                                                                            • Protection app from Openwork
                                                                              • Tiuta offer new app for loan calculations
                                                                                • Buy-to-let innovations
                                                                                  • Platform launches new buy-to-let mortgage products
                                                                                    • Yorkshire Building Society buy-to-let offering expanded
                                                                                      • Barclays relaunches 75% LTV buy-to-let deal
                                                                                      • Market Size and Forecast

                                                                                        • Key points
                                                                                          • Small increase in the value of gross and net mortgage advances
                                                                                            • Figure 24: Gross mortgage advances, 2005-11
                                                                                          • Building societies and specialist lenders leading the lending charge
                                                                                            • Figure 25: Gross mortgage lending, by type of lender, 2005-11*
                                                                                          • Tracker mortgages see popularity increase as BoE base rate remains low – but for how long?
                                                                                            • Figure 26: Kind of mortgage, 2007-11
                                                                                          • The value of loans for house purchasing fell by 6% in 2011…
                                                                                            • Figure 27: Gross mortgage lending, by type of loan, 2005-11
                                                                                          • … as did the number of house purchase loans
                                                                                            • Figure 28: Loans for house purchase, by type of borrower, 2005-11
                                                                                          • Moderate growth expected in mortgage lending over the next five years
                                                                                            • Figure 29: Forecast of gross mortgage advances, 2006-16
                                                                                        • Market Share

                                                                                          • Key points
                                                                                            • Lloyds Banking Group remains market leader
                                                                                              • Figure 30: Top six mortgage lenders, by gross advances, 2010 and 2011
                                                                                            • Top six lenders control almost 80% of outstanding balances
                                                                                              • Figure 31: Top six mortgage lenders, by amounts outstanding, 2010 and 2011
                                                                                            • A decreasing number of people are switching mortgage providers
                                                                                              • Figure 32: Changed mortgage provider in the past 12 months, 2007-11
                                                                                          • Companies and Products

                                                                                            • Lloyds Banking Group
                                                                                                • Figure 33: Lloyds Banking Group financials, H1 2010-H1 2011
                                                                                              • Santander
                                                                                                  • Figure 34: Santander financials, H1 2010-H1 2011
                                                                                                • RBS Group
                                                                                                    • Figure 35: RBS financials, H1 2010-H1 2011
                                                                                                  • HSBC
                                                                                                      • Figure 36: HSBC Bank plc financials, H1 2010-H1 2011
                                                                                                    • Barclays
                                                                                                        • Figure 37: Barclays plc financials, H1 2010-H1 2011
                                                                                                      • Nationwide
                                                                                                          • Figure 38: Nationwide Building Society financials, H1 2010-H1 2011
                                                                                                      • Brand Communication and Promotion

                                                                                                        • Key points
                                                                                                          • Fall in overall adspend but some areas seeing a big push
                                                                                                            • Figure 39: Total mortgage adspend, by sub-category, 2006/07-2010/11
                                                                                                          • Barclays is the top mortgage advertising spender
                                                                                                            • Figure 40: Total mortgage adspend, by company (top 10), 2009/10-2010/11
                                                                                                          • Advertising strategy is evolving along with the mortgage market
                                                                                                            • Figure 41: Total mortgage adspend, by media type, 2006/07-2010/11
                                                                                                          • Reactive and seasonal advertising drives adspend peaks and troughs
                                                                                                            • Figure 42: Monthly total mortgage adspend, 2010
                                                                                                        • Brand Research

                                                                                                          • Brand map
                                                                                                              • Figure 43: Attitudes towards and usage of brands in the mortgage sector, January 2012
                                                                                                            • Correspondence analysis
                                                                                                              • Brand attitudes
                                                                                                                • Figure 44: Attitudes towards brands active in the mortgage sector, January 2012
                                                                                                                • Figure 45: Personality of brands active in the mortgage sector – macro image, January 2012
                                                                                                                • Figure 46: Personality of brands active in the mortgage sector – micro image, January 2012
                                                                                                              • Brand experience
                                                                                                                • Figure 47: Use of brands active in the mortgage sector, January 2012
                                                                                                                • Figure 48: Satisfaction with various brands active in the mortgage sector, January 2012
                                                                                                                • Figure 49: Consideration of brands active in the mortgage sector, January 2012
                                                                                                                • Figure 50: Consumer perceptions of brand performance among mortgage providers, January 2012
                                                                                                                • Figure 51: Brand recommendation – Net Promoter Score, January 2012
                                                                                                              • Brand index
                                                                                                                • Figure 52: Mortgage sector brand index, January 2012
                                                                                                                • Figure 53: Brand index vs. recommendation in the mortgage sector, January 2012
                                                                                                              • Target group analysis
                                                                                                                • Figure 54: Target groups, January 2012
                                                                                                                • Figure 55: Mortgage brand usage, by target groups, January 2012
                                                                                                              • Group One – Conformists
                                                                                                                • Group Two – Simply the Best
                                                                                                                  • Group Three – Shelf Stalkers
                                                                                                                    • Group Four – Habitual Shoppers
                                                                                                                      • Group Five – Individualists
                                                                                                                      • Channels to Market

                                                                                                                        • Key points
                                                                                                                          • The intermediary marketplace needs to show its worth
                                                                                                                            • Figure 56: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2010/11
                                                                                                                          • The number of intermediary firms is falling across the board
                                                                                                                            • Figure 57: Number of mortgage/home finance appointed representatives and directly authorised intermediary firms, by type, Sep 2006-Sep 2011
                                                                                                                        • Mortgage Application Intentions

                                                                                                                          • Key points
                                                                                                                            • Just under four in ten people are homeowners with a mortgage
                                                                                                                              • Figure 58: Current UK housing situation
                                                                                                                            • Some 17% of people are considering applying for a mortgage in 2012
                                                                                                                              • Figure 59: Mortgage application intentions, January 2012
                                                                                                                            • Current mortgage owners most like to apply for a some sort of mortgage in 2012
                                                                                                                              • Figure 60: Mortgage application intentions, by current housing situation, January 2012
                                                                                                                            • 25-35-year-old are most likely to make a mortgage application
                                                                                                                              • Figure 61: Mortgage application intentions, by age, January 2012
                                                                                                                            • Mortgage ownership at lowest point of last five years
                                                                                                                              • Figure 62: People who have a mortgage, 2007-11
                                                                                                                            • Mortgage uptake has been dwindling in a post-financial crisis world
                                                                                                                              • Figure 63: When mortgage was first taken out, 2007-11
                                                                                                                          • Factors Influencing Mortgage Choice

                                                                                                                            • Key points
                                                                                                                              • Interest rates trump all other attributes when people choose their mortgage
                                                                                                                                • Figure 64: Factors influencing mortgage provider choice, January 2012
                                                                                                                              • Capital plus interest mortgages remain the most popular option
                                                                                                                                • Figure 65: Type of mortgage, 2007-11
                                                                                                                            • Attitudes Towards Mortgages and Residential Property

                                                                                                                              • Key points
                                                                                                                                • Despite some nerves people still believe that property is a worthy investment
                                                                                                                                  • Figure 66: Attitudes towards mortgages, January 2012
                                                                                                                                • Belief in property as a long-term investment is driving mortgage application in 2012
                                                                                                                                  • Figure 67: Attitudes towards mortgages, by mortgage application intentions, January 2012
                                                                                                                              • Property Price Expectations

                                                                                                                                • Key points
                                                                                                                                  • Consumers predict a stagnated market over the next 12 months
                                                                                                                                    • Figure 68: Expected property price performance, January 2012
                                                                                                                                  • Young people are more confident of property price increases
                                                                                                                                    • Figure 69: Property price expectations, by age, January 2012
                                                                                                                                  • Londoners are most likely to expect property prices to grow
                                                                                                                                    • Figure 70: property price expectations, by region, January 2012
                                                                                                                                  • Renters expect property prices to decrease
                                                                                                                                    • Figure 71: Property price expectations, by housing situation, January 2012
                                                                                                                                  • People planning on applying for a mortgage are much more likely to expect property price increases
                                                                                                                                    • Figure 72: Expected property price performance, by mortgage application intentions, January 2012
                                                                                                                                  • Providers need to tap in to the positive property thinkers
                                                                                                                                    • Figure 73: Attitudes towards mortgages, by expected property price performance, January 2012
                                                                                                                                • Mortgage Arrangement

                                                                                                                                  • Key points
                                                                                                                                    • People like the human touch when arranging a mortgage
                                                                                                                                      • Figure 74: Preferred method of arrangement, January 2012
                                                                                                                                    • People looking for a remortgage keener to arrange it remotely
                                                                                                                                      • Figure 75: Preferred method of arrangement, by mortgage application intentions, January 2012
                                                                                                                                    • More confidence among those prepared to go direct
                                                                                                                                      • Figure 76: Attitudes towards mortgages, by preferred method of arrangement, January 2012
                                                                                                                                  • Targeting Opportunities

                                                                                                                                    • Key points
                                                                                                                                      • One third of people are the Wary Wealthy
                                                                                                                                        • Figure 77: Targeting groups, January 2012
                                                                                                                                      • The Cautious Optimists
                                                                                                                                        • The Wary Wealthy
                                                                                                                                          • Safety Seekers
                                                                                                                                            • The Unconcerned
                                                                                                                                              • Figure 78: Target groups, January 2012
                                                                                                                                            • Safety Seekers and the Wary Wealthy are most likely to apply for a mortgage in 2012
                                                                                                                                              • Figure 79: Mortgage application intentions, target groups, January 2012
                                                                                                                                            • The Cautious Optimists are not confident in property price performance
                                                                                                                                              • Figure 80: Expected property price performance, target groups, January 2012
                                                                                                                                            • The less confident groups are most hesitant about remote mortgage arrangement
                                                                                                                                              • Figure 81: Preferred method of arrangement, by target groups, January 2012
                                                                                                                                          • Appendix – Brand Research

                                                                                                                                              • Figure 82: Brand usage, January 2012
                                                                                                                                              • Figure 83: Brand commitment, January 2012
                                                                                                                                              • Figure 84: Brand momentum, January 2012
                                                                                                                                              • Figure 85: Brand diversity, January 2012
                                                                                                                                              • Figure 86: Brand satisfaction, January 2012
                                                                                                                                              • Figure 87: Brand recommendation, January 2012
                                                                                                                                              • Figure 88: Brand attitude, January 2012
                                                                                                                                              • Figure 89: Brand image – macro image, January 2012
                                                                                                                                              • Figure 90: Brand image – micro image, January 2012
                                                                                                                                              • Figure 91: Profile of target groups, by demographic, January 2012
                                                                                                                                              • Figure 92: Psychographic segmentation, by target group, January 2012
                                                                                                                                              • Figure 93: Brand usage, by target group, January 2012
                                                                                                                                            • Brand index
                                                                                                                                              • Figure 94: Brand index, January 2012
                                                                                                                                          • Appendix – Mortgage Application Intentions

                                                                                                                                              • Figure 95: Mortgage application intentions, by demographics, January 2012
                                                                                                                                          • Appendix – Factors Influencing Mortgage Choice

                                                                                                                                              • Figure 96: Factors influencing mortgage provider brand reputation and interest rates, by demographics, January 2012
                                                                                                                                              • Figure 97: Factors influencing mortgage provider option to have a personal mortgage consultant, by demographics, January 2012
                                                                                                                                              • Figure 98: Factors influencing mortgage provider will lend to self-employed/people with irregular income, by demographics, January 2012
                                                                                                                                              • Figure 99: Factors influencing mortgage provider option to make additional payments without penalty, by demographics, January 2012
                                                                                                                                              • Figure 100: Factors influencing mortgage provider choice, by mortgage application intentions, January 2012
                                                                                                                                          • Appendix – Attitudes Towards Mortgages

                                                                                                                                              • Figure 101: Agreement with the statements ‘Property is a good long-term investment’ and ‘I’d struggle to get a new mortgage/remortgage in the current climate’, by demographics, January 2012
                                                                                                                                              • Figure 102: Agreement with the statements ‘I intend to make overpayments on my mortgage this year’ and ‘I’m nervous about buying property/getting a new mortgage in the current climate’, by demographics, January 2012
                                                                                                                                          • Appendix – Property Price Expectations

                                                                                                                                              • Figure 103: Expected property price performance, by demographics, January 2012
                                                                                                                                          • Appendix – Mortgage Arrangement

                                                                                                                                              • Figure 104: Preferred method of arrangement, by demographics, January 2012
                                                                                                                                          • Appendix – Targeting Opportunities

                                                                                                                                              • Figure 105: Target groups, by demographics, January 2012
                                                                                                                                          • Appendix – Market Forecast

                                                                                                                                              • Figure 106: Forecast of gross mortgage advances, 2011-16

                                                                                                                                          Companies Covered

                                                                                                                                          • Abbey
                                                                                                                                          • Alliance & Leicester
                                                                                                                                          • Bank of Ireland
                                                                                                                                          • Barclays Bank plc
                                                                                                                                          • Birmingham Midshires
                                                                                                                                          • Cahoot
                                                                                                                                          • Cheltenham & Gloucester plc
                                                                                                                                          • Co-operative Group
                                                                                                                                          • Countrywide Assured Group plc
                                                                                                                                          • First Direct
                                                                                                                                          • FIRSTPLUS Financial Group Plc
                                                                                                                                          • Formula One Administration Ltd
                                                                                                                                          • Grupo Santander Central Hispano S.A.
                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                          • Lloyds Banking Group
                                                                                                                                          • Lloyds TSB Insurance
                                                                                                                                          • Nationwide Building Society
                                                                                                                                          • NatWest
                                                                                                                                          • Paradigm Mortgage Services
                                                                                                                                          • Research in Motion Uk Ltd.
                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                          • Scottish Widows Bank plc
                                                                                                                                          • UCB Home Loans
                                                                                                                                          • Woolwich plc

                                                                                                                                          Mortgages - UK - March 2012

                                                                                                                                          £1,750.00 (Excl.Tax)