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Mortgages - UK - March 2013

“There is a high degree of pent-up demand among prospective first-time buyers, with nearly 4 million UK adults looking to buy their first home over the coming year. However, with house prices still high relative to average earnings and tighter lending controls, for example in relation to income multiples and LTVs, the majority of these prospects will remain aspirational homeowners.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in this report include:

  • Why is home ownership declining?
  • And how are house prices contributing to the problem?
  • So how much demand is there to buy property?
  • What are the main implications of the MMR?
  • What is the future for interest-only mortgages?
  • How much competition is there in the market?
  • What is the outlook for new mortgage lending?

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Table of contents

  1. Introduction

      • Market definitions
        • Abbreviations
        • Executive Summary

            • The market
              • A large target market
                • New business crept up by the narrowest of margins in 2012…
                  • Figure 1: Forecast of gross new mortgage lending (at current prices), 2007-17
                • …driven by growth in the house purchase sector
                  • Figure 2: Gross mortgage lending, by type of loan, 2007-12
                • Varied performance by type of lender
                  • A cautious outlook, albeit with some encouraging signs
                    • Market factors
                      • Regulatory developments
                        • Conditions in the wider housing market
                          • Companies, brands and innovation
                            • Product innovation
                              • Mixed results for the top six lenders
                                • Figure 3: Market shares of the top six mortgage lenders, by gross advances, 2012
                              • Distribution mix: intermediaries start to wrestle back share
                                • Lenders cut back on advertising in 2012
                                  • The consumer
                                    • Mortgage ownership falls
                                      • Mintel’s consumer research: mortgage application intentions
                                        • Figure 4: Mortgage application intentions within the next 12 months, December 2012
                                      • The typical mortgage borrower and first-time buyer applicant
                                        • The most sought-after product feature is a fixed interest rate
                                          • Figure 5: Features most wanted from new mortgage product or provider, December 2012
                                        • Mortgage debt-servicing behaviour by existing borrowers
                                          • Sources used to research or arrange a mortgage
                                            • Figure 6: Sources expected to use when researching or arranging new mortgage/remortgage, December 2012
                                          • Expected house price movements
                                            • Figure 7: Expected house price movement over the next year, by potential mortgage and remortgage applicants, December 2012
                                          • General attitudes towards buying and owning property
                                            • Figure 8: Agreement with statements about buying and owning property, December 2012
                                          • What we think
                                          • Issues in the Market

                                              • Why is home ownership declining?
                                                • And how are house prices contributing to the problem?
                                                  • So how much demand is there to buy property?
                                                    • What are the main implications of the MMR?
                                                      • What is the future for interest-only mortgages?
                                                        • How much competition is there in the market?
                                                          • What is the outlook for new mortgage lending?
                                                          • Trend Application

                                                            • Develop apps that motivate would-be buyers to save for their first home deposit
                                                              • Personalise the service to retain business
                                                                • Adapt mortgage terms to cater for increasing longevity
                                                                • Market Drivers

                                                                  • Key points
                                                                    • Regulation round-up
                                                                      • Key dates to note
                                                                        • Financial crisis sparked the need for change
                                                                          • Summary of the main MMR reforms
                                                                            • Sensible measures, which most lenders have already adopted
                                                                              • Interest-only loans permitted, in theory at least
                                                                                • Arrears management
                                                                                  • Less emphasis on ‘generic’ disclosure, instead greater use of targeted information
                                                                                    • Second-charge loans will come under FCA remit
                                                                                      • Other changes in the pipeline
                                                                                        • The UK lending environment
                                                                                          • Market liquidity improves
                                                                                            • Lenders continue to see decent margins on new lending
                                                                                              • Figure 9: Bank of England base rate, three-month (monthly average) LIBOR and effective new mortgage rate, January 2007-December 2012
                                                                                            • FLS prompts lenders to adjust their pricing of fixed-rate deals
                                                                                              • Mortgage approvals driven by lending for house purchase
                                                                                                • Figure 10: Number of quarterly mortgage approvals (seasonally adjusted), by type, Q1 2007-Q4 2012
                                                                                              • Mortgage debt write-offs remain steady
                                                                                                • Figure 11: Quarterly write-offs of lending to individuals, by sector, Q1 2007-Q4 2012
                                                                                              • Decline in repossessions and number of mortgages in arrears
                                                                                                • Figure 12: Number of mortgage arrears (as at end of three-month period) and quarterly repossessions, Q1 2009-Q4 2012
                                                                                              • SMI scheme extended to March 2015
                                                                                                • Macroeconomic and wider housing market factors
                                                                                                  • Economic backdrop: there is some cause for optimism
                                                                                                    • Consumer sentiment languishes in negative territory
                                                                                                      • Figure 13: GfK Consumer Confidence Barometer – UK, January 1989-January 2013
                                                                                                    • Mortgage and house buying intentions increase
                                                                                                      • Figure 14: Expected mortgage and property purchase activity, quarterly indices, Q3/Q4 2002-Q4/Q1 2013
                                                                                                    • House prices have broadly stabilised over the past two years
                                                                                                      • Figure 15: Annual change in average UK house price – comparison of four sources, Q1 2007-Q4 2012
                                                                                                    • Housing transactions still running well below pre-crisis levels
                                                                                                      • Figure 16: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q1 2007-Q4 2012
                                                                                                  • Trends in Housing Tenure

                                                                                                    • Key points
                                                                                                      • Owner-occupied dwellings as a share of total housing stock have steadily declined since 2006
                                                                                                        • Figure 17: UK housing stock, by tenure, 1991-2011
                                                                                                    • Market SWOT Analysis

                                                                                                        • Figure 18: UK Mortgage market – SWOT analysis, 2013
                                                                                                    • Who’s Innovating?

                                                                                                      • Key points
                                                                                                        • Mortgage availability improves, but there’s limited appetite for new product innovation
                                                                                                          • Figure 19: Number of residential mortgage products available, by selected LTV, 2009-13 (selected months)
                                                                                                        • Lenders are starting to more aggressively target the first-time buyer market
                                                                                                          • Some competition starts to seep into the market…
                                                                                                            • …and a few new entrants emerge
                                                                                                            • Market Size and Forecast

                                                                                                              • Key points
                                                                                                                • Gross new lending edged up slightly in 2012, while net lending declined
                                                                                                                  • Figure 20: Total secured lending, by gross and net advances (not seasonally adjusted), 2006-12
                                                                                                                • Redemptions have fallen over the past two years
                                                                                                                  • Figure 21: Mortgage repayments, by type (not seasonally adjusted), 2006-12
                                                                                                                • Mintel expects the market to recover steadily over the next five years
                                                                                                                  • Figure 22: Forecast of gross secured lending – fan chart, 2007-17
                                                                                                                  • Figure 23: Forecast of gross secured lending, at current and constant prices, 2012-17
                                                                                                                • Forecast methodology
                                                                                                                  • Fan chart explanation
                                                                                                                  • Segment Performance

                                                                                                                    • Key points
                                                                                                                      • Mutuals significantly outperformed the banks in 2012
                                                                                                                        • Figure 24: Gross mortgage lending, by type of lender (not seasonally adjusted), 2006-12
                                                                                                                      • House purchase lending up 7% in 2012, but remortgage business fell
                                                                                                                        • Figure 25: Gross mortgage lending, by type of loan, 2006-12
                                                                                                                      • First-time buyer loans reached their highest level in five years
                                                                                                                        • Figure 26: Loans advanced for house purchase, by type of borrower, 2006-12
                                                                                                                      • Mortgage PSD trends
                                                                                                                      • Market Share

                                                                                                                        • Key points
                                                                                                                          • Three of the top six lenders reduced their mortgage lending in 2012
                                                                                                                            • Figure 27: Top six mortgage lenders, by gross advances, 2010-12
                                                                                                                          • LBG’s overall share of the mortgage market had fallen to just under 26% at the end of 2012
                                                                                                                            • Figure 28: Top six mortgage lenders, by outstanding mortgage balances in the UK, 2011 and 2012
                                                                                                                        • Companies and Products

                                                                                                                            • Barclays
                                                                                                                                • Figure 29: Key annual financial data for Barclays Plc, 2011 and 2012
                                                                                                                              • HSBC
                                                                                                                                  • Figure 30: Key annual financial data for HSBC Bank Plc, 2011 and 2012
                                                                                                                                • Lloyds Banking Group
                                                                                                                                    • Figure 31: Key annual financial data for Lloyds Banking Group, 2011 and 2012
                                                                                                                                  • Nationwide Building Society
                                                                                                                                      • Figure 32: Key interim financial data for Nationwide Building Society, H1 2011 and H1 2012
                                                                                                                                    • RBS/NatWest
                                                                                                                                        • Figure 33: Key annual financial data for RBS Group, 2011 and 2012
                                                                                                                                      • Santander
                                                                                                                                          • Figure 34: Key annual financial data for Santander UK, 2011 and 2012
                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                        • Key points
                                                                                                                                          • Lenders reduced their advertising budgets in 2012
                                                                                                                                            • Figure 35: Total advertising expenditure on mortgage products and services, 2008-12
                                                                                                                                          • The largest share of industry adspend in 2012 went on brand building
                                                                                                                                            • Figure 36: Advertising expenditure on mortgage products and services, by sub-product category, 2008-12
                                                                                                                                          • Halifax was the leading mortgage advertiser in 2012
                                                                                                                                            • Figure 37: Advertising expenditure on mortgage products and services (excluding equity release), by top 15 advertisers, 2010-12
                                                                                                                                          • Press and TV account for most of the industry’s adspend…
                                                                                                                                            • Figure 38: Proportional distribution of mortgage adspend (excluding equity release), by media type, 2010-12
                                                                                                                                          • …but online advertising is growing in importance
                                                                                                                                          • Channels to Market

                                                                                                                                            • Key points
                                                                                                                                              • Intermediary share growing steadily
                                                                                                                                                • Figure 39: Proportional distribution of regulated mortgage sales, by channel, 2007/08-2011/12
                                                                                                                                              • Greater focus on ‘advised’ sales should help bolster the mortgage brokerage market
                                                                                                                                              • Mortgage Ownership Trends

                                                                                                                                                • Key points
                                                                                                                                                  • Mortgage penetration has declined steadily over the past decade
                                                                                                                                                    • Figure 40: Proportion of adults who have a mortgage, 2003-12
                                                                                                                                                  • The typical mortgage customer is aged 35-54
                                                                                                                                                    • Figure 41: Mortgage penetration and profile of mortgage borrowers, by demographics, 2012
                                                                                                                                                  • Three quarters of mortgages are jointly held
                                                                                                                                                    • Figure 42: Mortgage held solely or jointly with another person, 2012
                                                                                                                                                  • Around three in five mortgage borrowers have held their mortgage for over five years
                                                                                                                                                    • Figure 43: When mortgage was first taken out, 2008-12
                                                                                                                                                  • Around one in six have a mortgage term longer than 25 years
                                                                                                                                                    • Figure 44: Length of mortgage term, 2012
                                                                                                                                                  • First-time homeowners account for around two fifths of the market
                                                                                                                                                    • Figure 45: Proportion of borrowers whose current mortgage is for their first property, 2008-12
                                                                                                                                                  • Around one in six have an interest-only mortgage
                                                                                                                                                    • Figure 46: Type of mortgage held, 2008-12
                                                                                                                                                  • One in 13 mortgage holders are paying £1,000+ a month in mortgage repayments
                                                                                                                                                    • Figure 47: Value of monthly mortgage repayments, 2012
                                                                                                                                                  • The proportion of borrowers remortgaging has fallen over the past five years
                                                                                                                                                    • Figure 48: Proportion of mortgage borrowers who have remortgaged in the past year, 2008-12
                                                                                                                                                  • Just under a quarter of borrowers have increased their mortgage debt
                                                                                                                                                    • Figure 49: Proportion of mortgage borrowers who have increased their mortgage debt, 2008-12
                                                                                                                                                • Mortgage Application Intentions

                                                                                                                                                  • Key points
                                                                                                                                                    • Survey background
                                                                                                                                                      • Segmentation of sample by housing tenure
                                                                                                                                                        • Figure 50: Current housing tenure, December 2012
                                                                                                                                                      • Strong mortgage intentions indicate considerable pent-up demand
                                                                                                                                                        • Figure 51: Mortgage application intentions within the next 12 months, by current tenure, December 2012
                                                                                                                                                    • Most Desirable Product Features

                                                                                                                                                      • Key points
                                                                                                                                                        • Prospective applicants are keen on fixing their mortgage repayments
                                                                                                                                                            • Figure 52: Features most wanted from new mortgage product/provider, by type of home buyer, December 2012
                                                                                                                                                          • The relative importance of different product features
                                                                                                                                                            • Figure 53: Relative importance of features among the five selected, December 2012
                                                                                                                                                        • Sources Used to Assist Product Selection

                                                                                                                                                          • Key points
                                                                                                                                                            • The internet has evolved into a valuable consumer research tool
                                                                                                                                                              • Figure 54: Sources expected to use when researching or arranging new mortgage/remortgage, by type of home buyer, December 2012
                                                                                                                                                            • Mortgage prospects are more inclined to seek advice from their existing bank than a rival one
                                                                                                                                                            • Mortgage Repayment Activity

                                                                                                                                                              • Key points
                                                                                                                                                                • A third of mortgage holders are striving to pay off their mortgage quicker
                                                                                                                                                                    • Figure 55: Mortgage repayment and debt-servicing behaviour, December 2012
                                                                                                                                                                  • A customer’s financial situation will heavily influence their ability to overpay and their propensity to fall into arrears
                                                                                                                                                                    • Figure 56: Mortgage repayment and debt-servicing behaviour, by current financial situation, December 2012
                                                                                                                                                                • Attitudes towards House Prices and Buying Property

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Most people expect house prices to remain level in 2013
                                                                                                                                                                      • Figure 57: Expected house price movement over the next year, by potential mortgage and remortgage applicants, December 2012
                                                                                                                                                                    • Over three quarters of UK adults think house prices remain ‘out of reach’ for most first-time buyers
                                                                                                                                                                        • Figure 58: Agreement with statements about buying and owning property, December 2012
                                                                                                                                                                      • Nearly two fifths of prospective applicants think they’d struggle to get a mortgage or remortgage
                                                                                                                                                                        • Figure 59: Agreement with statements about buying and owning property – by potential mortgage applicants only, December 2012
                                                                                                                                                                    • Appendix – Market Forecast

                                                                                                                                                                        • Figure 60: Best and worst case forecasts for gross mortgage lending, 2012-17
                                                                                                                                                                    • Appendix – Current Tenure and Mortgage Application Intentions

                                                                                                                                                                        • Figure 61: Tenure, by demographics, December 2012
                                                                                                                                                                        • Figure 62: Mortgage application intentions, by demographics, December 2012
                                                                                                                                                                    • Appendix – Most Desirable Product Features

                                                                                                                                                                        • Figure 63: Top six features most wanted from a mortgage product, by demographics, December 2012
                                                                                                                                                                    • Appendix – Sources Used to Assist Product Selection

                                                                                                                                                                        • Figure 64: Top five sources expected to use when researching or arranging mortgage/remortgage, by demographics, December 2012
                                                                                                                                                                    • Appendix – Mortgage Repayment Activity

                                                                                                                                                                        • Figure 65: Mortgage repayment and debt-servicing behaviour, by demographics, December 2012
                                                                                                                                                                    • Appendix – Attitudes towards House Prices and Buying Property

                                                                                                                                                                        • Figure 66: Expected house price movement over the next year, by demographics, December 2012
                                                                                                                                                                        • Figure 67: Proportion who agree with statements about owning property and getting a mortgage, by demographics, December 2012

                                                                                                                                                                    Companies Covered

                                                                                                                                                                    • Abbey
                                                                                                                                                                    • Alliance & Leicester
                                                                                                                                                                    • Bank of Ireland
                                                                                                                                                                    • Barclaycard
                                                                                                                                                                    • Barclays Bank plc
                                                                                                                                                                    • Birmingham Midshires
                                                                                                                                                                    • Bradford & Bingley plc
                                                                                                                                                                    • Cheltenham & Gloucester plc
                                                                                                                                                                    • Co-operative Group
                                                                                                                                                                    • Derbyshire Building Society
                                                                                                                                                                    • Direct Line Group Limited
                                                                                                                                                                    • Dunfermline Building Society
                                                                                                                                                                    • England and Wales Cricket Board (ECB)
                                                                                                                                                                    • Financial Services Authority (The)
                                                                                                                                                                    • First Direct
                                                                                                                                                                    • Grupo Santander UK
                                                                                                                                                                    • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                                                    • ING Direct
                                                                                                                                                                    • Law Society (The)
                                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                                    • Lloyds TSB Insurance
                                                                                                                                                                    • Marks & Spencer
                                                                                                                                                                    • Nationwide Building Society
                                                                                                                                                                    • NatWest
                                                                                                                                                                    • Portman Building Society
                                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                                    • Virgin Money
                                                                                                                                                                    • Woolwich plc

                                                                                                                                                                    Mortgages - UK - March 2013

                                                                                                                                                                    £1,995.00 (Excl.Tax)