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Specialist Mortgage Lending - UK - September 2009

The specialist mortgage sector has been in absolute turmoil over the past two years with certain product areas such as sub-prime under threat of extinction. Having previously experienced a sustained period of growth, development and innovation, the industry is now battling to survive the onslaught of the liquidity drought, facilitated by the US sub-prime crisis.

In this report, Mintel asks…

  • How has the global credit crisis impacted the market for specialist mortgage lending?

  • Which lenders have exited the market and which remain?

  • What effect is recession having on the sector?

  • How are lenders and intermediaries responding to these challenging conditions?

  • How will the specialist mortgage market look post-credit crunch?

  • Who will be the winners and the losers?

  • What is the current size of the market and its prospects for future growth?

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Table of contents

  1. Issues in the Market

      • In this report, Mintel asks…
        • Report scope and definitions
          • Types of borrower
            • Abbreviations
            • Future Opportunities

              • Life After Debt
                • Helping to empty the nest
                  • Survival of the fittest
                    • Opportunities remain
                      • Price appropriate to risk
                        • Support needed for existing borrowers
                          • Supply of shared-ownership mortgages falls well short of demand
                          • Market in Brief

                            • A market in rapid decline
                              • Figure 1: Gross mortgage lending, 2005-09
                            • Recession-linked factors will expand the non-prime population
                              • The crisis will lead to greater regulatory control and scrutiny
                                • Funding problems have led to a sharp fall in specialist products and providers
                                  • Lenders cut back on marketing
                                    • Downturn hits intermediary business
                                      • Uncertain outlook for the specialist mortgage market
                                        • A third of consumers have been affected by at least one credit risk factor
                                          • Figure 2: Credit risk factors experienced during the past three years, June 2009
                                        • Nearly four million UK adults are credit-impaired…
                                          • Figure 3: Segmentation of UK population and mortgage holders, by credit risk, June 2009
                                        • …of which, one in seven have recently been rejected for a mortgage or remortgage
                                        • External Environment and Market Drivers

                                          • Key points
                                            • Summary of the main macroeconomic indicators
                                              • Interest rate cuts benefit tracker-mortgage borrowers
                                                • LIBOR and base rate gap
                                                  • Figure 4: Bank of England base rate and three-month (monthly average) LIBOR, January 2003-June 2009
                                                • Insight and implication
                                                  • The debt mountain continues to grow
                                                    • Figure 5: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 1999-2008
                                                  • Insight and implication
                                                    • Other indicators also paint a gloomy picture
                                                      • CCJs were up 4% in 2008
                                                        • Figure 6: Consumer CCJs registered, satisfied and cancelled – England and Wales, 2003-08
                                                      • Insight and implication
                                                        • Individual insolvencies expected to soar in 2009
                                                          • Figure 7: Individual bankruptcies and IVAs in England and Wales (not seasonally adjusted), 2003-08
                                                        • Insight and implication
                                                          • Changing social trends fuel demand for rented property
                                                            • Buy-to-let arrears and repossessions up
                                                              • Figure 8: Buy-to-let mortgages three or more months in arrears and with receiver of rent in place, 2007 and 2008
                                                            • Insight and implication
                                                              • A growing self-employed population will sustain demand for self-cert
                                                                • Figure 9: Number of self-employed in the UK, by gender, 2000-09 (Quarter 1)
                                                              • Insight and implication
                                                                • Financial activity starting to pick up
                                                                  • Figure 10: Savings, investment, borrowing and debt repayment – consumers’ expected activity, quarterly indices, June 2002-March 2009
                                                                • Borrowing and buying intentions are also up
                                                                  • Figure 11: Expected mortgage and property purchase activity, quarterly indices, Q3/Q4 2002-Q1/Q2 2009
                                                              • Historical Context and Crisis Impact

                                                                • Key points
                                                                  • A changing mortgage landscape
                                                                    • The rise of specialist lenders
                                                                      • Figure 12: Total mortgage balances outstanding, by type of lender, 1993-2009 (quarterly)
                                                                    • Boom years come to an end
                                                                      • Liquidity crisis forces major market contraction
                                                                        • Consumers blame crisis on lenders
                                                                          • Figure 13: Agreement with statements about the state of the housing and mortgage markets, January 2009
                                                                        • Government intervention to improve liquidity
                                                                          • Bank of England extends quantitative easing
                                                                            • Homeowners Mortgage Support
                                                                            • Regulation Round-up

                                                                              • Key points
                                                                                • The current regulatory system needs updating
                                                                                  • Buy-to-let lending to come under FSA remit?
                                                                                    • LTV and LTI caps up for debate
                                                                                      • Self-cert under threat
                                                                                        • FSA’s warning to intermediaries
                                                                                          • Commission-based remuneration under scrutiny
                                                                                            • Potential extension of the RDR
                                                                                            • Competitive Context

                                                                                              • Key points
                                                                                                • Total gross mortgage lending was down by more than a quarter in 2008
                                                                                                  • Figure 14: Gross mortgage lending, by type of loan, 2004-08
                                                                                                • Market for secured homeowner loans also hit by liquidity crisis
                                                                                                  • Figure 15: Value of new further advances and secured personal loans, 2004-08
                                                                                                • Insight and implication
                                                                                                • Strengths and Weaknesses in the Market

                                                                                                    • Figure 16: Specialist mortgage market – SWOT analysis, 2009
                                                                                                • Who’s Innovating?

                                                                                                  • Key points
                                                                                                    • Limited innovation in a contracting market
                                                                                                      • Figure 17: Number of lenders offering specialist mortgages, by type, 2007-09
                                                                                                    • Lenders slowly returning to the first-time buyer market
                                                                                                      • Greater focus on affordability going forward
                                                                                                      • The Mortgage Market in Context

                                                                                                        • Key points
                                                                                                          • Credit crunch slows housing activity
                                                                                                            • Figure 18: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q2 2005-Q2 2009
                                                                                                          • 2008 saw a sharp drop in house prices…
                                                                                                            • Figure 19: Annual house price growth in the UK – comparison of four sources, 2003-08 (Quarter 4)
                                                                                                          • …but start to pick up in mid-2009
                                                                                                            • Mortgage approvals have also risen recently
                                                                                                              • Figure 20: Number of monthly mortgage approvals for home purchase, by sector, June 2007-June 2009
                                                                                                          • Market Size

                                                                                                            • Key points
                                                                                                              • Around five million mortgages are held by non-prime borrowers
                                                                                                                • Figure 21: Estimated breakdown of the UK mortgage market – number of outstanding prime versus non-prime mortgages, 2008 and 2009
                                                                                                              • New specialist lending falls sharply
                                                                                                                • Figure 22: Breakdown of gross mortgage lending, by specialist sector, 2005-09
                                                                                                              • Insight and implication
                                                                                                                • New buy-to-let business severely hampered by the crunch
                                                                                                                  • Figure 23: Number and value of new buy-to-let mortgage advances, 2000-09
                                                                                                                • Insight and implication
                                                                                                                • Market Share

                                                                                                                  • Key points
                                                                                                                    • Buy-to-let lender rankings
                                                                                                                      • Figure 24: Estimated market share of the top buy-to-let mortgage lenders, by amounts outstanding, 2008
                                                                                                                    • Crisis impact
                                                                                                                      • Lenders’ overall market position prior to the crisis
                                                                                                                        • Crisis consolidates the market
                                                                                                                          • Figure 25: Lenders’ share of the mortgage market, by amounts outstanding, 2007 and 2008
                                                                                                                        • Lloyds Banking Group was responsible for 30% of new mortgage advances in 2008
                                                                                                                          • Figure 26: Lenders’ share of the mortgage market, by gross advances, 2007 and 2008
                                                                                                                      • Companies and Products

                                                                                                                        • Key points
                                                                                                                          • All change
                                                                                                                            • A much slimmer market post-crunch
                                                                                                                              • Figure 27: Summary of main providers of specialist mortgage products, August 2009
                                                                                                                            • Lenders retreat en masse
                                                                                                                              • Figure 28: Lenders who have withdrawn from the specialist mortgage market, 2008 and 2009
                                                                                                                            • Key player profiles
                                                                                                                              • Beacon Homeloans
                                                                                                                                • BM Solutions/HBOS
                                                                                                                                  • Godiva Mortgages/Coventry Building Society
                                                                                                                                    • Platform
                                                                                                                                      • The Mortgage Works/Nationwide Specialist Lending
                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                        • Key points
                                                                                                                                          • Credit crunch suppresses mortgage adspend
                                                                                                                                            • Figure 29: Total advertising expenditure on mortgage products and services, 2004/05-2008/09
                                                                                                                                          • Advertising by intermediaries has seen the sharpest decline
                                                                                                                                            • Figure 30: Mortgage advertising expendtiure, by product category, 2006/07-2008/09
                                                                                                                                          • Three equity release scheme providers make the top ten mortgage advertisers in 2008/09
                                                                                                                                            • Figure 31: Mortgage advertising expendtiure, by top ten advertisers, 2006/07-2008/09
                                                                                                                                          • Specialist mortgage lenders cut back on advertising
                                                                                                                                            • Figure 32: Advertising expenditure by selected specialist mortgage lenders/advisers, 2006/07-2008/09
                                                                                                                                          • Specialists switch to direct mail to target existing customers
                                                                                                                                            • Figure 33: Distribution of adspend, by media type – all mortgages adspend vs specialist providers, 2008/09
                                                                                                                                        • Channels to Market

                                                                                                                                          • Key points
                                                                                                                                            • Specialist mortgage sector has traditionally been heavily reliant on intermediaries
                                                                                                                                              • Decline in the number of mortgage intermediaries
                                                                                                                                                • Figure 34: Number of mortgage ARs and DA intermediary firms, by type, 2006-08
                                                                                                                                              • Intermediaries account for over half of all new mortgage lending
                                                                                                                                                • Figure 35: Intermediaries’ share of new mortgage business, by type of loan, 2006-08
                                                                                                                                              • Intermediaries face tough year in 2009
                                                                                                                                              • The Consumer – Credit Risk Factors

                                                                                                                                                • Key points
                                                                                                                                                  • Survey background
                                                                                                                                                    • Changing jobs and addresses are common events that can affect a person’s credit rating
                                                                                                                                                        • Figure 36: Credit risk factors experienced during the past three years, 2008 and 2009
                                                                                                                                                      • Insight and implication
                                                                                                                                                        • A quarter of renters have moved addresses at least twice in the past three years
                                                                                                                                                          • Figure 37: Credit risk factors experienced during the past three years, by gender and tenure, June 2009
                                                                                                                                                        • Insight and implication
                                                                                                                                                          • The under-45s present the greatest credit risk
                                                                                                                                                            • Figure 38: Credit risk factors experienced during the past three years, by age, June 2009
                                                                                                                                                          • Insight and implication
                                                                                                                                                            • C2s have the highest bankruptcy rate, while Es are most likely to incur a CCJ
                                                                                                                                                              • Figure 39: Credit risk factors experienced during the past three years, by socio-economic group, June 2009
                                                                                                                                                            • Insight and implication
                                                                                                                                                              • Low-to-moderate income groups are more likely to have a history of adverse credit
                                                                                                                                                                • Figure 40: Credit risk factors experienced during the past three years, by household income, June 2009
                                                                                                                                                              • Insight and implication
                                                                                                                                                                • One in 20 people have experienced three or more risk factors
                                                                                                                                                                  • Figure 41: Number of credit risk factors experienced during the past three years, June 2009
                                                                                                                                                                • A small proportion of mortgage holders could experience difficulty remortgaging…
                                                                                                                                                                  • Figure 42: Number of credit risk factors experienced during the past three years, by gender and tenure, June 2009
                                                                                                                                                                • …while many potential first-time buyers could be prevented from making the first step onto the ladder
                                                                                                                                                                  • Figure 43: Number of credit risk factors experienced during the past three years, by age, June 2009
                                                                                                                                                              • The Consumer – Credit Profiling

                                                                                                                                                                • Key points
                                                                                                                                                                  • Risk assessment
                                                                                                                                                                    • Over 15 million people are regarded as non-prime
                                                                                                                                                                      • Figure 44: Size of the non-prime population, 2008 and 2009
                                                                                                                                                                    • Some 8% of mortgage holders are credit-impaired
                                                                                                                                                                      • Figure 45: Segmentation of UK population and mortgage holders, by credit risk, June 2009
                                                                                                                                                                    • Demographic overview of the main credit risk groups
                                                                                                                                                                      • Figure 46: Leading characteristics of the main credit risk groups, June 2009
                                                                                                                                                                  • The Consumer – Mortgage Ownership

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Specialist mortgages are very niche
                                                                                                                                                                          • Figure 47: Mortgage ownership, by type of product, 2008 and 2009
                                                                                                                                                                        • Insight and implication
                                                                                                                                                                          • Could high LTVs increase the chance of arrears?
                                                                                                                                                                            • Figure 48: Mortgage ownership, by credit risk group, June 2009
                                                                                                                                                                          • Insight and implication
                                                                                                                                                                            • Those with multiple credit risk factors are more likely to have a mortgage
                                                                                                                                                                              • Figure 49: Mortgage ownership, by credit risk group, June 2009
                                                                                                                                                                            • Some 220,000 mortgages have LTVs of 100% or higher
                                                                                                                                                                              • Figure 50: Mortgage ownership, by mortgage holders, June 2009
                                                                                                                                                                            • Insight and implication
                                                                                                                                                                            • The Consumer – Targeting Opportunities

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Only 5% of people think it’s more difficult now to get a mortgage
                                                                                                                                                                                    • Figure 51: Perception of mortgage availability, buying intentions and credit refusal, by credit risk group, June 2009
                                                                                                                                                                                  • Insight and implication
                                                                                                                                                                                    • Non-prime individuals are more affected by the change in market conditions
                                                                                                                                                                                      • Figure 52: Perception of mortgage availability, buying intentions and credit refusal, by credit risk group, June 2009
                                                                                                                                                                                    • Insight and implication
                                                                                                                                                                                    • Appendix – Consumer Credit Profile

                                                                                                                                                                                        • Figure 53: Credit profile of UK adults, by demographics, June 2009
                                                                                                                                                                                    • Appendix – Profile of Mortgage Holders

                                                                                                                                                                                        • Figure 54: Profile of mortgage holders, by demographics, June 2009

                                                                                                                                                                                    Companies Covered

                                                                                                                                                                                    • Abbey
                                                                                                                                                                                    • Alliance & Leicester
                                                                                                                                                                                    • Aviva Plc
                                                                                                                                                                                    • Bank of Ireland
                                                                                                                                                                                    • Birmingham Midshires
                                                                                                                                                                                    • Britannia Building Society
                                                                                                                                                                                    • British Chamber of Commerce
                                                                                                                                                                                    • Building Societies Association
                                                                                                                                                                                    • CACI Limited
                                                                                                                                                                                    • Chelsea Building Society
                                                                                                                                                                                    • Cheltenham & Gloucester plc
                                                                                                                                                                                    • Citigroup Private Bank
                                                                                                                                                                                    • Clydesdale Bank
                                                                                                                                                                                    • Co-operative Group
                                                                                                                                                                                    • Council of Mortgage Lenders
                                                                                                                                                                                    • Coventry Building Society
                                                                                                                                                                                    • Cumberland Building Society
                                                                                                                                                                                    • Dunfermline Building Society
                                                                                                                                                                                    • Financial Ombudsman Service
                                                                                                                                                                                    • Financial Services Authority (The)
                                                                                                                                                                                    • Gfk NOP
                                                                                                                                                                                    • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                                                                    • John Gilbert Financial Research
                                                                                                                                                                                    • Kent Reliance Building Society
                                                                                                                                                                                    • Legal & General Group PLC
                                                                                                                                                                                    • Lehman Brothers [UK]
                                                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                                                    • Merrill Lynch (UK)
                                                                                                                                                                                    • Money Partners
                                                                                                                                                                                    • Morgan Stanley & Co International Ltd
                                                                                                                                                                                    • National Australia Bank
                                                                                                                                                                                    • Nationwide Building Society
                                                                                                                                                                                    • NatWest
                                                                                                                                                                                    • Northern Rock plc
                                                                                                                                                                                    • Norwich & Peterborough Building Society
                                                                                                                                                                                    • Nottingham Building Society
                                                                                                                                                                                    • Office of Fair Trading
                                                                                                                                                                                    • Paragon Mortgages
                                                                                                                                                                                    • Prudential plc
                                                                                                                                                                                    • Registry Trust (The)
                                                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                                                    • Skipton Building Society
                                                                                                                                                                                    • Southern Pacific Mortgage Limited
                                                                                                                                                                                    • Standard Life Bank Limited
                                                                                                                                                                                    • The Finance & Leasing Association
                                                                                                                                                                                    • UCB Home Loans
                                                                                                                                                                                    • Ulster Bank Ltd
                                                                                                                                                                                    • West Bromwich Building Society
                                                                                                                                                                                    • Yorkshire Building Society

                                                                                                                                                                                    Specialist Mortgage Lending - UK - September 2009

                                                                                                                                                                                    £1,995.00 (Excl.Tax)