UK Right to Buy Mortgages 2005

TABLE OF CONTENTS

ABOUT DATAMONITOR

CHAPTER 1 INTRODUCTION

• Scope and definitions
• Scope
• Definition of Right to buy
• The Right to buy purchase process explained
• Right to buy mortgages explained
• However, there is an extra step for the mortgage procedures on the lenders side
• Who is the target reader?
• How to use this briefing?

CHAPTER 2 THE RIGHT TO BUY SCHEME IN CONTEXT

• Right to buy was introduced in 1980 to boost home ownership
• Right to buy generally applies to secure tenants
• Assured tenants of RSLs who previously held secure tenancies with local authorities have the Preserved Right to buy
• Under the Right to buy scheme, the tenant is allowed to buy their property at less than market value
• Discounts available vary by region
• The government has introduced various amendments to discount ceilings throughout the years
• In addition to boosting home ownership, Right to buy fulfills other social and economic aims
• However, the scheme also has a number of other social and economic aims
• Right to buy remains a popular measure among eligible tenants but new planned HomeBuy schemes will provide competition to the scheme
• Schemes offering discounts and grants
• Schemes offering equity loans
• Schemes offering shared ownership
• These schemes are limited by their exclusions
• New HomeBuy schemes position themselves as serious alternatives to the Right to buy scheme
• Since its introduction, Right to buy has helped more than 2.2 million public sector tenants in Great Britain into homeownership
• However, the Right to buy scheme has attracted criticisms
• Alleged exploitation of the scheme by companies and individuals has tainted the Right to buy market
• Some Right to buy service companies were found to apply hard sales techniques to stimulate demand
• Right to buy incentive companies were found to exploit a loophole in the Right to buy scheme
• Some tenants were exercising their Right to buy in regeneration areas
• Right to buy sales have led to a shortage in affordable rented properties
• However, the lack of investment in new builds has also contributed to this situation
• The government has introduced various measures to clamp down on Right to buy profiteering
• A less attractive Right to buy to discourage abuse
• The new extended qualifying period is not expected to affect RTB sales in the short-term
• Conclusions

CHAPTER 3 SIZING THE RIGHT TO BUY MORTGAGE MARKET

• The Right to buy mortgage market was worth ｣2.6 billion in gross advances in 2003/2004
• Methodology used in sizing the Right to buy mortgage market
• Step one: Right to buy sales by local authorities and registered social landlords
• Step two: capital receipts per property sale
• Step 3: total capital receipts from Right to buy sales in England
• Step four: the size of the Right to buy mortgage market
• Right to buy gross advances in England rose by 24.9 per cent on a yearly average over the period 1999/2000 to 2003/2004
• Gross advances for Preserved Right to buy are the fastest growing product line
• Advances for properties sold under Right to buy by local authorities in Great Britain reached ｣2.8 billion in 2003/2004
• In terms of market share of the total secured lending market, the Right to buy mortgage market has barely progressed over the previous years
• Sound macroeconomic factors have contributed to the stable growth of the market
• Sound macro-economic conditions have laid the foundation for growth in the total secured lending market including the Right to buy mortgage market
• Strong growth in GDP contributed to stable economic conditions in 2004
• Interest rates are still relatively low despite witnessing four successive increases of 0.25 percentage point in 2004
• The Right to buy mortgage market is likely to have been more affected by the successive increases in base rate of 2004 than the mainstream mortgage market
• House prices have soared in recent years thus boosting the UK mortgage market
• However, factors specific to the Right to buy mortgage market have also played a role in the sustained growth
• The downward review of discounts available on Right to buy in hot spots in 2003 meant that the selling price per property has increased
• Fear about the Right to buy scheme being scrapped also inflated the number of sales in 2002/2003 and 2003/2004
• RTB sales have probably fallen back to their average normal level for 2004/2005
• Remortgaging, although much less significant than in the mainstream market, contributed for around 20 per cent of gross advances in 2004
• Title insurance will boost remortgaging in the future
• Title insurance has the potential to impact positively on the Right to buy mortgage market by adding security to securitization transactions
• Conclusions

CHAPTER 4 THE LANDSCAPE OF THE RIGHT TO BUY MORTGAGE MARKET

• The structure of the Right to buy mortgage market is characterized by a wide array of lenders and brokers
• There are two major types of players in the Right to buy mortgage market
• Lenders in the Right to buy mortgage market are not particularly aggressive
• All mainstream mortgage lenders among the top 15 offer mortgages on Right to buy although they do not advertise the product
• The majority of the non-standard mortgages players have a presence in the Right to buy mortgage market
• Despite the lack of aggression shown by Right to buy lenders, non-standard players appear to have a stronger image than mainstream players in this market
• 52 per cent of households who bought their present accomodation as sitting tenants under the Right to buy scheme were receiving state benefits
• In addition, interviews carried out among players reveal that new mortgage lending under the Right to buy scheme is on the rise
• Datamonitor estimates that 45 per cent of gross advances realized under the Right to buy scheme in 2003/04 accounted for the non-standard segment
• A number of reasons can explain the lack of dynamism shown by Right to buy lenders
• The fact that the market is scattered means that each player owns a very small share of the Right to buy mortgage market
• The limited potential of the Right to buy mortgage market has dampened competitiveness
• Other niche mortgage markets are seen as more profitable
• Should lenders concentrate more on Right to buy?
• Similar to many niche mortgage markets, brokers play a major role in the Right to buy sector
• Brokers are an important chain in the distribution of Right to buy mortgages given the specific needs of Right to buy customers
• A few factors explain the high concentration of brokers in the Right to buy mortgage market
• Brokers present in the Right to buy mortgage market are generally those who operate in the non-standard market
• In addition, there are a certain number of small scale bespoke Right to buy mortgage brokers
• Hundreds of Right to buy service companies operate across the country
• Conclusions

CHAPTER 5 FORECASTING THE RIGHT TO BUY MORTGAGE MARKET

• Datamonitors forecasting model revisits the factors which have impacted the Right to buy mortgage market and assesses their importance in the future
• Macroeconomic factors and factors specific to the Right to buy mortgage market are included in the forecasting model
• Various assumptions are built into Datamonitors Forecasting model
• The Right to buy mortgage market in England continues to grow but at a much slower pace
• Gross advances in the Right to buy mortgage sector in England will amount to ｣2.7 billion in 2008/2009
• Preserved Right to buy will drive the Right to buy mortgage market forward
• Market share of Right to buy mortgage advances within the total secured lending market will remain marginal
• Mortgage advances in Great Britain for Right to buy under local authorities will fall to ｣2.3 billion in 2004/05 before reaching ｣2.5 billion in 2008/09
• Despite the number of RTB sales falling, gross advances will rise at an annual average rate of 2.3 per cent
• Conclusions

CHAPTER 6 APPENDIX

• Supplementary data
• Graphics relating to Chapter 2: The Right to Buy Scheme in Context
• Graphics relating to Chapter 3: Sizing the Right to Buy Mortgage Market
• Definitions
• AAGR
• Assured tenant
• Bank of England base rate
• Buy-to-let
• CAGR
• Deed of postponement
• Gross advances
• Loan-to-value (LTV)
• LA
• Non-standard customer
• Preserved Right to Buy
• Remortgaging
• Right to buy (RTB)
• RSL
• Secure tenant
• Self-certification mortgage
• Title insurance
• Research methodology
• References
• Relevant readings
• UK Mortgage Market Map
• Key Features
• For futher information
• Current reports
• Future Datamonitor publications
• Relevant links
• Datamonitors custom research capabilities
• SPP writing team
• How to contact experts in your industry
• List of Tables
• Table 1: Maximum discounts available for tenants purchasing houses and flats or maisonettes through Right to buy in England and Wales, July 2005
• Table 2: Maximum discounts available under the Right to buy scheme by region, July 2005
• Table 3: The changing Right to buy discount regime, 1980 to 2005
• Table 4: Number of Right to buy sales in England split by tenant, 1999/2000 to 2003/2004
• Table 5: Number of Right to buy sales in Great Britain under local authorities, 1999/2000 to 2003/2004
• Table 6: Average capital receipts per social housing sale by local authorities, 1999/2000-2003/2004
• Table 7: Capital receipts received by local authorities from Right to buy sales, 1999/2000-2003/2004
• Table 8: RTB gross advances split by tenant, 1999/00 - 2003/0004
• Table 9: Market share of Right to buy within the total secured lending market, 1999/2000 to 2003/2004
• Table 10: Top 15 largest mortgage lenders by balances outstanding position on Right to buy mortgage, July 2005
• Table 11: Non-standard lenders active in the Right to buy mortgage market, July 2005
• Table 12: Examples of brokers operating in the Right to buy mortgage market, July 2005
• Table 13: Examples of bespoke brokers in the Right to buy mortgage market, July 2005
• Table 14: Market drivers for the Right to buy mortgage market, 1999/00 - 2008-2009f
• Table 15: Datamonitors forecast for the Right to buy mortgage market in England, split by tenant, 2004/05-2008/09f
• Table 16: Datamonitors forecast for the number of Right to buy sales in England, split by tenant, 2004/05-2008/09
• Table 17: Forecasted market share of Right to buy mortgage advances within the total secured lending market, 2004/05 to 2008/09
• Table 18: Datamonitors forecasts for Right to buy under local authorities in Great Britain, 2003/04 to 2008/09
• Table 19: Right to buy statistics for local authorities in Great Britain, 1999-2004 Q1
• Table 20: The number of permanent dwellings completed in Great Britain by tenure, 1990/91 - 2003/04
• Table 21: Number of dwellings sold under the Right to buy scheme by local authorities in Great Britain, 1980/1981 - 2003/2004
• Table 22: Gross advances for RTB sales under local authorities in Great Britain, 1999/2000 to 2003/2004
• Table 23: Year-on-year growth in the total secured lending and Right to buy markets, 1999/2000 - 2003/2004
• Table 24: Halifax House Prices Index, 2000-2004
• List of Figures
• Figure 1: The Right to buy purchase process, July 2005
• Figure 2: The number of properties sold via Right to buy under local authorities in Great Britain has fluctuated throughout the years, 1980/81 to 2003/2004
• Figure 3: Gross advances in the Right to buy mortgage market reached ｣2.6 billion in 2003/2004
• Figure 4: Gross advances for properties sold under RTB by local authorities in Great Britain amounted to ｣2.8 billion in 2003/2004, 1999/2000 to 2003/2004
• Figure 5: Growth in the Right to buy mortgage market outpaced growth in the total secured lending market in 2002/2003 and 2003/2004, 1999/00 - 2003/04
• Figure 6: 52.6 per cent of households which bought their present accommodation under Right to buy had a household income of under ｣15,000 in 2003/2004, 2003/2004
• Figure 7: Growth in house prices were strong over the last three years, 2000 - 2004
• Figure 8: 48 per cent of households who bought their present accommodation under the Right to buy scheme were inactive, self-employed or unemployed, 2003/2004
• Figure 9: An estimated 45 per cent of RTB gross advances in 2003/2004 accounted for the non-standard sector, 2003/2004
• Figure 10: Dwelling stock owned by local authorities is continuously falling, 2000-2004
• Figure 11: Buy-to-let and self-cert have grown faster and are bigger in size than Right to buy, 2000-2004
• Figure 12: After falling back to its normal level in 2004/05, gross advances in the England Right to buy mortgage market will reach ｣2.7 billion in 2008/09, 2003/04 to 2008/09f
• Figure 13: RTB gross advances in Great Britain under local authorities will grow at a stable rate from 2004/05 to 2008/09 despite a continuous fall in the number of Right to buy sales, 2003/04-2008/09
• Figure 14: The UK Mortgage Market Map covers a wide range of mortgage sectors
• Figure 15: Mortgage sectors covered within the UK Mortgage Market Map
• Figure 16: Datamonitors core consulting capabilities