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Mortgages - UK - March 2015

“The costs of renting put such a strain on people’s finances that home ownership starts to seem like an impossible dream. The negative consequences of this can be combated if more lenders work with savings providers and government initiatives to help renters take proactive steps towards saving for their first home.”

-Jessica Morley, Financial Services Analyst

This report covers the following areas:

  • Regulation confusion is damaging to consumer sentiment
  • Tighter restrictions disproportionately affect self-employed and single consumers
  • Rent to Buy could help those struggling to afford the urban lifestyle

The mortgage market went through yet another year of upheaval in 2014. The Mortgage Market Review (MMR) represented the greatest regulatory change for more than a decade, meaning that lenders have had to devote a large share of their resources to coming to terms with the new environment. With more regulation on the way in the form of the European Mortgage Credit Directive, the FCA’s review of the MMR and a focus on interest-only mortgages, there is a growing concern that the market is becoming overly regulated and that this is having unwelcome consequences. In particular there are early indications that the pool of potential new business is becoming increasingly concentrated as specific groups, such as younger and older consumers, self-employed and single individuals and those on lower incomes, are locked out of the market due to affordability concerns.

These are all challenges that the market is more than capable of meeting head on as lenders become more confident and comfortable within their new operating environment and begin to think more innovatively about lending criteria, fees and product design. The strong growth over the past couple of years has taken gross lending over the £200 billion mark for the first time since the financial crisis, highlighting just how capable the market is of recovering from adversity.

This report examines the residential mortgage market, analysing some of the key developments in this sector, including wider economic trends and regulatory challenges. This report also provides a snapshot of mortgage lending levels, including a market forecast which shows expected growth in gross lending over the next five years. Mintel’s exclusive consumer research concludes the report, looking at product ownership, appetite for mortgages over the next 12 months, awareness of regulatory changes, attitudes towards and costs of home ownership and mortgages for both renters and mortgage owners, and general consumer attitudes towards mortgages.

 

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Table of contents

  1. Introduction

      • Market Definitions
        • The main sectors within the secured lending market are:
          • Types of mortgage based on method of repayment:
            • Types of mortgage based on interest rate:
              • Abbreviations
              • Executive Summary

                  • The market
                    • Rate of growth for gross mortgage advances starts to slow, but remains strong
                      • Figure 1: Forecast of gross mortgage lending, 2009-19
                    • 2014 was a year of regulatory change for the mortgage industry
                      • Consumers are beginning to feel the effects of economic growth
                        • Housing features strongly on the political agenda
                          • Tax reform cuts costs for home buyers
                            • The lending market is becoming increasingly competitive
                              • Housing market conditions
                                • Average house prices continue to increase
                                  • Figure 2: Annual change in average UK house price – Comparison of four sources, Q1 2007-Q4 2014
                                • MMR results in a drop in the number of mortgage approvals
                                  • Figure 3: Number of quarterly mortgage approvals seasonally adjusted, by type, Q1 2007-Q3 2014
                                • Number of property transactions continues to grow but rate of growth is slowing
                                  • Figure 4: Number of residential property transaction completions with value £40,000 or above, Q1 2007-Q4 2014
                                • Record low inflation has limited the likelihood of an interest rate rise
                                  • Figure 5: Monthly interest rate of UK monetary financial institutions (excluding Central Bank) for 2 year variable rate mortgage and 2 year fixed-rate mortgage both at 75% loan to value, January 2008-December 2014
                                • Conditions improved for first-time buyers in 2014
                                  • Companies, brands and innovation
                                    • Top six lenders account for 71% of all new lending
                                      • Figure 6: Top six mortgage lenders, by gross advances, 2014
                                    • High-street lenders benefit from greater exposure
                                      • Figure 7: Attitudes towards and usage of selected brands, December 2014
                                    • The consumer
                                      • Mortgage ownership
                                        • Figure 8: Mortgage ownership December 2014
                                      • Type of mortgage owned
                                        • Figure 9: Type of mortgage held, December 2014
                                      • Affordability of mortgages for renters
                                        • Figure 10: Renter attitudes towards property ownership and mortgages, December 2014
                                      • Mortgage owner purchasing experiences
                                        • Figure 11: Consumer opinions on the mortgage purchasing experience, December 2014
                                      • Mortgage owner attitudes towards mortgage costs and availability
                                        • Figure 12: Mortgage owner attitudes towards mortgage costs and availability, December 2014
                                      • Consumer awareness and understanding of regulatory changes
                                        • Figure 13: Consumer awareness of MMR regulatory changes, December 2014
                                      • Consumer mortgaging and re-mortgaging intentions
                                        • Figure 14: Consumers’ likelihood to take out a mortgage/re-mortgage in the next 12 months, December 2014
                                      • What we think
                                      • Issues and Insights

                                          • Regulation confusion is damaging to consumer sentiment
                                            • Issues
                                              • Implications
                                                • Tighter restrictions disproportionately affect self-employed and single consumers
                                                  • Issues
                                                    • Implications
                                                      • Rent to Buy could help those struggling to afford the urban lifestyle
                                                        • Issues
                                                          • Implications
                                                          • Trend Application

                                                            • Greater focus on advice gives mortgage providers an opportunity to build trust
                                                              • Greater collaboration between savings providers and mortgage lenders could boost consumer sentiment
                                                                • Mintel Futures: Brand Intervention
                                                                • Market Drivers

                                                                  • Key points
                                                                    • 2014 was dominated by regulation
                                                                      • Homebuilding rates remain low, despite slight pick-up in 2013/14
                                                                        • Figure 15: Number of new builds for all types of tenure, 2005-14
                                                                      • Improving economic conditions could boost consumer sentiment
                                                                        • Stamp duty reform cuts costs for the majority of buyers
                                                                          • Figure 16: Residential land or property stamp duty land tax rates and thresholds from 4 December 2014
                                                                        • Activity at the end of 2014 suggests a more competitive year ahead for mortgage lenders
                                                                        • The Housing Market

                                                                          • Key points
                                                                            • Average house prices continue to grow strongly
                                                                              • Figure 17: Annual change in average UK house price – Comparison of four sources, Q1 2007-Q4 2014
                                                                            • Drop in number of mortgage approvals following implementation of Mortgage Market Review
                                                                              • Figure 18: Number of quarterly mortgage approvals seasonally adjusted, by type, Q1 2007-Q3 2014
                                                                            • Number of repossessions and arrears remains low in 2014
                                                                              • Slowdown in rate of growth for property transactions
                                                                                • Figure 19: Number of residential property transaction completions with value £40,000 or above, Q1 2007-Q4 2014
                                                                              • Mortgage borrowers are feeling the benefit of low base rates
                                                                                • Figure 20: Monthly interest rate of UK monetary financial institutions (excluding Central Bank) for 2 year variable rate mortgage and 2 year fixed-rate mortgage both at 75% loan to value, January 2008-December 2014
                                                                              • Many are still concerned about the impact of an interest rate rise on their finances
                                                                                • Figure 21: Consumers’ assessment of the impact of an interest rise on their finances, December 2014
                                                                              • Conditions are improving for first-time buyers
                                                                              • SWOT Analysis

                                                                                  • Figure 22: UK mortgage market, SWOT analysis, 2015
                                                                              • Who’s Innovating?

                                                                                • Key points
                                                                                  • TSB offers the best of both worlds
                                                                                    • HSBC seeks to speed up the mortgage application process
                                                                                      • Barclays cuts costs for first-time buyers
                                                                                        • The opportunity to help ‘Mortgage Prisoners’
                                                                                        • Market Size and Forecast

                                                                                          • Key points
                                                                                            • Consistent growth in both gross lending and net advances
                                                                                              • Figure 23: Total secured lending, by gross and net advances (not seasonally adjusted), 2008-14
                                                                                            • Redemptions and regular repayments climb back up
                                                                                              • Figure 24: Mortgage repayments, by type (not seasonally adjusted), 2008-14
                                                                                            • Continued growth in gross mortgage lending expected over the next five years
                                                                                              • Figure 25: Forecast of gross mortgage lending, 2009-19
                                                                                              • Figure 26: Forecast of gross mortgage lending, at current and constant prices, 2009-19
                                                                                            • Forecast methodology
                                                                                              • Fan chart explanation
                                                                                              • Segment Performance

                                                                                                • Key points
                                                                                                  • Banks continue to dominate the market
                                                                                                    • Figure 27: Gross mortgage lending, by type of lender (not seasonally adjusted), 2007-14
                                                                                                  • New lending outstrips re-mortgage business
                                                                                                    • Figure 28: Gross mortgage lending, by type of loan, 2007-14
                                                                                                  • A recovery in the first-time buyer market
                                                                                                    • Figure 29: Loans advanced for house purchase, by type of borrower, 2007-14
                                                                                                • Channels to Market

                                                                                                  • Key points
                                                                                                    • Growing proportion of intermediated sales
                                                                                                      • Figure 30: Proportional distribution of regulated mortgage sales, by channel, 2009/10-13/14
                                                                                                    • Almost eight in 10 mortgages sold on an advised basis
                                                                                                      • Figure 31: Distribution of regulated mortgage sales, advised versus non-advised, 2009/10-2013/14
                                                                                                  • Market Share

                                                                                                    • Key points
                                                                                                      • Six lenders account for 71% of all new lending
                                                                                                        • Figure 32: Top six mortgage lenders, by gross advances, 2012-14
                                                                                                    • Companies and Products

                                                                                                      • Barclays
                                                                                                        • Gross mortgage lending
                                                                                                          • Relevant brands and subsidiaries
                                                                                                            • Mortgage product range
                                                                                                              • Distribution channels
                                                                                                                • Key financial data
                                                                                                                  • Figure 33: Key financial data for Barclays PLC, 2013-14
                                                                                                                • Recent activity
                                                                                                                  • HSBC
                                                                                                                    • Gross mortgage lending
                                                                                                                      • Relevant brands and subsidiaries
                                                                                                                        • Mortgage product range
                                                                                                                          • Distribution channels
                                                                                                                            • Key financial data
                                                                                                                              • Figure 34: Key annual financial data for HSBC Bank PLC, 2013 and 2014
                                                                                                                            • Recent activity
                                                                                                                              • Lloyds Banking Group
                                                                                                                                • Gross mortgage lending
                                                                                                                                  • Relevant brands and subsidiaries
                                                                                                                                    • Mortgage product range
                                                                                                                                      • Distribution channels
                                                                                                                                        • Key financial data
                                                                                                                                          • Figure 35: Key financial data for Lloyds Banking Group 2013-14
                                                                                                                                        • Recent activity
                                                                                                                                          • Nationwide
                                                                                                                                            • Gross mortgage lending
                                                                                                                                              • Relevant brands and subsidiaries
                                                                                                                                                • Mortgage product range
                                                                                                                                                  • Distribution channels
                                                                                                                                                    • Key financial data
                                                                                                                                                      • Figure 36: Key financial data for Nationwide 2013 and 2014
                                                                                                                                                    • Recent activity
                                                                                                                                                      • RBS/NatWest
                                                                                                                                                        • Gross mortgage lending
                                                                                                                                                          • Relevant brands and subsidiaries
                                                                                                                                                            • Mortgage product range
                                                                                                                                                              • Distribution channels
                                                                                                                                                                • Key financial data
                                                                                                                                                                  • Figure 37: Key financial data for RBS Group 2013-14
                                                                                                                                                                • Recent activity
                                                                                                                                                                  • Santander
                                                                                                                                                                    • Gross mortgage lending
                                                                                                                                                                      • Relevant brands and subsidiaries
                                                                                                                                                                        • Mortgage product range
                                                                                                                                                                          • Distribution channels
                                                                                                                                                                            • Key financial data
                                                                                                                                                                              • Figure 38: Key financial data for Santander UK 2013 and 2014
                                                                                                                                                                            • Recent activity
                                                                                                                                                                            • Brand Communication and Promotion

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Spending on mortgage advertising falls but is still considerably higher than post-crisis expenditure
                                                                                                                                                                                  • Figure 39: Total advertising expenditure and services, 2009/10-2013/14
                                                                                                                                                                                • Brand building dominates advertising expenditure
                                                                                                                                                                                  • Figure 40: Advertising expenditure on mortgage products and services, by sub-category, 2009/10-2013/14
                                                                                                                                                                                • TSB spends to establish itself in the market
                                                                                                                                                                                  • Figure 41: Advertising expenditure on mortgage products and services, by top 15 advertisers, 2009/10-2013/14
                                                                                                                                                                                • Decreasing influence of the press
                                                                                                                                                                                  • Figure 42: Proportional distribution of mortgage adspend, by media type, 2009-14
                                                                                                                                                                                • A note about adspend
                                                                                                                                                                                • Brand Research

                                                                                                                                                                                  • What you need to know
                                                                                                                                                                                    • Brand map
                                                                                                                                                                                      • Figure 43: Attitudes towards and usage of selected brands, December 2014
                                                                                                                                                                                    • Key brand metrics
                                                                                                                                                                                      • Figure 44: Key metrics for selected brands, December 2014
                                                                                                                                                                                    • Brand attitudes: Tesco Bank’s Clubcard appear to boost loyalty associations
                                                                                                                                                                                      • Figure 45: Attitudes, by brand, December 2014
                                                                                                                                                                                    • Brand personality: Santander has stronger perception of vibrancy than others
                                                                                                                                                                                      • Figure 46: Brand personality – Macro image, December 2014
                                                                                                                                                                                    • Barclays still has negative associations compared to other brands
                                                                                                                                                                                      • Figure 47: Brand personality – Micro image, December 2014
                                                                                                                                                                                    • Brand analysis
                                                                                                                                                                                      • Nationwide performs strongly across metrics with particular strength in trust
                                                                                                                                                                                        • Figure 48: User profile of Nationwide, December 2014
                                                                                                                                                                                      • Tesco Bank has perceptions of accessibility and customer service
                                                                                                                                                                                        • Figure 49: User profile of Tesco Bank, December 2014
                                                                                                                                                                                      • Yorkshire Building Society shares similar benefits to Nationwide
                                                                                                                                                                                        • Figure 50: User profile of Yorkshire Building Society, December 2014
                                                                                                                                                                                      • Santander uses advertising to boost upbeat connotations
                                                                                                                                                                                        • Figure 51: User profile of Santander, December 2014
                                                                                                                                                                                      • Barclays maintains quality perception despite negative press
                                                                                                                                                                                        • Figure 52: User profile of Barclays, December 2014
                                                                                                                                                                                      • NatWest has particular strength among younger adults
                                                                                                                                                                                        • Figure 53: User profile of NatWest, December 2014
                                                                                                                                                                                      • HSBC has bias towards higher income groups
                                                                                                                                                                                        • Figure 54: User profile of HSBC, December 2014
                                                                                                                                                                                      • Lloyds Bank has greater consistency across income bands
                                                                                                                                                                                        • Figure 55: User profile of Lloyds Bank, December 2014
                                                                                                                                                                                      • John Charcol has an element of exclusivity and authority as mortgage specialist
                                                                                                                                                                                        • Figure 56: User profile of John Charcol, December 2014
                                                                                                                                                                                      • London & Country has lower perception of exclusivity but still lacks awareness
                                                                                                                                                                                        • Figure 57: User profile of London & Country, December 2014
                                                                                                                                                                                      • The Co-operative Bank has lost trust but maintains element of social responsibility
                                                                                                                                                                                        • Figure 58: User profile of The Co-operative Bank, December 2014
                                                                                                                                                                                    • Mortgage Ownership

                                                                                                                                                                                      • Key points
                                                                                                                                                                                        • Ownership levels continue to be restricted by economic and demographic factors
                                                                                                                                                                                          • Figure 59: Mortgage Ownership, December 2013 vs. December 2014
                                                                                                                                                                                        • Low ownership levels amongst young and old consumers highlight concentration of the target market
                                                                                                                                                                                          • Figure 60: Mortgage owners, by age, December 2014
                                                                                                                                                                                        • Income has a significant influence on mortgage ownership
                                                                                                                                                                                          • Figure 61: Mortgage owners, by gross annual household income, December 2014
                                                                                                                                                                                        • Affordability criteria limit options for single households
                                                                                                                                                                                          • Figure 62: Mortgage ownership, by current marital status, December 2014
                                                                                                                                                                                      • Timing of Last Mortgage Purchase

                                                                                                                                                                                        • Key points
                                                                                                                                                                                          • Impact of the credit crisis clearly evident in mortgage purchase timings
                                                                                                                                                                                            • Figure 63: Timeframe of mortgage purchase, December 2014
                                                                                                                                                                                          • Regulations restrict access to mortgages for self-employed consumers
                                                                                                                                                                                            • Figure 64: Mortgage ownership by employment status, and proportion of mortgages taken out by employment status, December 2014
                                                                                                                                                                                        • Type of Mortgage Held

                                                                                                                                                                                          • Key points
                                                                                                                                                                                            • Uncertainty about interest rate rises and favourable rates increase the popularity of fixed-rate mortgages
                                                                                                                                                                                              • Figure 65: Type of mortgage held, December 2013 vs. December 2014
                                                                                                                                                                                            • Implementation of the MMR and tighter restrictions on interest only mortgages does little to alleviate confusion
                                                                                                                                                                                              • Regulatory focus on interest-only could bring ownership levels down
                                                                                                                                                                                              • Affordability of Mortgages for Renters

                                                                                                                                                                                                • Key points
                                                                                                                                                                                                  • Many renters feel that they will never be able to afford their own home
                                                                                                                                                                                                    • Figure 66: Renter attitudes towards property ownership and mortgages, December 2014
                                                                                                                                                                                                  • Helping young consumers save for a deposit could be the key to increasing prospects
                                                                                                                                                                                                      • Figure 67: Agreement with the statement ‘I am currently saving for a deposit on my first home,’ by age, December 2014
                                                                                                                                                                                                    • …this includes preventing the development of pessimistic attitudes
                                                                                                                                                                                                      • Figure 68: Mortgage intentions of renters, by other mortgage intentions of renters, December 2014
                                                                                                                                                                                                      • Figure 69: Mortgage intentions of current renters, by attitudes towards home purchasing, December 2014
                                                                                                                                                                                                  • The Mortgage Purchase Experience

                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                      • Most mortgage/re-mortgage purchasing experiences over the past five years have been positive
                                                                                                                                                                                                        • Figure 70: Consumer opinions on the mortgage purchasing experience, December 2014
                                                                                                                                                                                                      • Majority of consumers feel that they had adequate choice when taking out their mortgage
                                                                                                                                                                                                        • Understanding of mortgage transactions is high
                                                                                                                                                                                                          • 70% say they understand what to do if payment becomes difficult
                                                                                                                                                                                                            • More mortgage owners understood charges and fees than thought they were fair
                                                                                                                                                                                                            • Mortgage Owner Attitudes towards Mortgage Costs and Availability

                                                                                                                                                                                                              • Key points
                                                                                                                                                                                                                • Low savings rates encourage early repayments
                                                                                                                                                                                                                  • Figure 71: Agreement with statements about mortgage costs and availability, December 2014
                                                                                                                                                                                                                • A fifth are reliant on introductory deals and fixed-rates
                                                                                                                                                                                                                  • The risk posed by the MMR to the re-mortgage market
                                                                                                                                                                                                                  • Consumer Awareness and Understanding of Regulatory Changes

                                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                                      • Consumer awareness and understanding of the MMR regulations is low
                                                                                                                                                                                                                          • Figure 72: Awareness and understanding of new mortgage regulations, December 2014
                                                                                                                                                                                                                        • Misunderstanding of regulations undermines consumer confidence
                                                                                                                                                                                                                            • Figure 73: Agreement with the statement ‘I don’t think I’ll ever be able to afford to buy my own home’ by awareness and understanding of new mortgage regulations, December 2014
                                                                                                                                                                                                                        • Consumer Mortgaging and Re-Mortgaging Intentions

                                                                                                                                                                                                                          • Key points
                                                                                                                                                                                                                            • Majority of consumers unlikely to take out a new mortgage within the next 12 months
                                                                                                                                                                                                                                • Figure 74: Likelihood to take out a mortgage in the next 12 months, December 2014
                                                                                                                                                                                                                                • Figure 75: Selected demographics by unlikelihood to take out a mortgage/re-mortgage in the next 12 months, December 2014
                                                                                                                                                                                                                              • More than half of all current mortgage holders do not intent to re-mortgage in the next year
                                                                                                                                                                                                                                  • Figure 76: Mortgage ownership by mortgage/re-mortgage intentions of the next 12, December 2014
                                                                                                                                                                                                                                • Mortgage seekers are most aware of regulatory change
                                                                                                                                                                                                                                    • Figure 77: Likelihood to take out a mortgage within the next 12 months, by awareness and understanding of new mortgage regulations, December 2014
                                                                                                                                                                                                                                  • Mortgage lenders have a relatively small group of potential new customers
                                                                                                                                                                                                                                      • Figure 78: Likelihood of current renters to take out a mortgage in the next 12 months, December 2014
                                                                                                                                                                                                                                  • Appendix

                                                                                                                                                                                                                                    • Annual and quarterly mortgages approvals data
                                                                                                                                                                                                                                      • Figure 79: Number of quarterly mortgage approvals seasonally adjusted, by type, Q1 2007-Q3 2014
                                                                                                                                                                                                                                      • Figure 80: Number of Annual mortgage approvals seasonally adjusted, by type, 2013-14
                                                                                                                                                                                                                                    • Market size and forecast
                                                                                                                                                                                                                                      • Figure 81: Best and worst case forecast of gross mortgage lending, 2009-2019

                                                                                                                                                                                                                                  Companies Covered

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                                                                                                                                                                                                                                  Mortgages - UK - March 2015

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