Table of Contents
CHAPTER 1 EXECUTIVE SUMMARY
- Sizing the UK non-standard population in 2005
- Datamonitor estimates that the non-standard population stood at 9.1
million in 2005
- Underlying macro-economic factors ultimately drive the non-standard
population
- Social trends also play a key role in driving the non-standard
population
- The non-standard population will rise gradually to 9.42 million by 2010
- Overview of the UK secured lending market in 2005
- The UK mortgage market exceeded expectations over 2005
- 2005 began slowly
- However, mortgage activity picked up in the latter half of 2005
- As such 2005 yielded a stable but lower result than in 2004
- 2006 started brightly, but a number of underlying issues remain
- The non-standard secured lending market
- The competitive landscape of the non-standard mortgage market
- Forecasting the non-standard secured lending market
- Under Datamonitor's View scenario the non-standard mortgage market will
slow but to a lesser extent than in the mainstream market
- Under Datamonitor's View scenario, the non-standard second charge loans
market expands
CHAPTER 2 INTRODUCTION
- What is this report about?
- Who is the target reader?
- How to use this report
CHAPTER 3 SIZING THE UK NON-STANDARD POPULATION IN 2005
- Introduction
- Defining the non-standard population
- Lending products: altering the dynamics of demand and supply
- Subjectivity is a necessary evil
- Alternative commonly used terms
- Sub-prime is a segment of non-standard
- Report coverage: age and affordability
- Datamonitor estimates that the non-standard population stood at 9.1
million in 2005
- A combination of macro-economic and social factors has been responsible
for a declining non-standard population in recent years
- Underlying macro-economic factors ultimately drive the non-standard
population
- Unemployment trends feed directly into the non-standard market
- Interest rates play a pivotal role in driving the non-standard
population
- Mortgage arrears and repossessions remain low, but have risen recently
- 2005 witnessed the first rise in registered CCJs in fifteen years,
however, the number of CCJs on record continues to fall
- Personal bankruptcies hit a record high in 2005
- Social trends also play a key role in driving the non-standard population
- According to Datamonitor's estimations, just over two million
individuals were without a bank account in 2005 in the UK
- Self-employment numbers have been increasing particularly strongly in
recent years
- The number of income support recipients has fallen moderately
- The non-standard population will rise gradually to 9.42 million by 2010
CHAPTER 4 OVERVIEW OF THE UK SECURED LENDING MARKET IN 2005
- Introduction
- The UK mortgage market exceeded expectations over 2005
- 2005 began slowly
- However, mortgage activity picked up in the latter half of 2005
- Mortgage lending picked up over 2005
- The number of loans continued to rise
- On the whole, house prices increased over 2005
- Loans for house purchase also showed signs of improvement
- As such, 2005 yielded a stable but lower result than 2004
- 2006 started brightly
- Q1 2006 figures suggest the market is back to strong growth
- But there remain a number of factors restraining the market going forward
- Affordability remains a critical issue
- Consumer confidence remains low
- Moreover, lenders are seeing an increase in mortgage arrears levels
CHAPTER 5 THE NON-STANDARD SECURED LENDING MARKET
- Introduction
- Datamonitor has made changes to secured loan market data
- Datamonitor's sizing methodologies explained
- Sizing the non-standard mortgage market requires a number of steps
- Step 1: Estimating the number of non-standard households in the UK
- Step 2: Estimating the number of non-standard households with a
mortgage
- Step 3: Calculating the percentage of UK dwellings with a mortgage
that is accounted for by the non-standard population
- Step 4: Estimating the value of the non-standard mortgage market
- A number of steps are also necessary in order to size the non-standard
second charge market
- Datamonitor now sizes the second charge market instead of both first
charge and second charge loans
- Sizing the non-standard second charge loan market
- Any questions...
- Despite a decline in the non-standard population, the non-standard
mortgage market grew, however slowly, in 2005
- The non-standard mortgage market was worth an estimated £36.1
billion in 2005 in terms of gross advances
- The non-standard mortgage market is still outperforming the mainstream
market
- Moreover, the sector now accounts for 14.6 per cent of the market
- Various factors affected the market's growth in 2005
- Macro-economic conditions played a part
- Regulation slowed the market down
- However, a number of other factors specific to the non-standard
mortgage lending segment have allowed the marget to outperform the total
market
- An increase in the volume of loans rather than average loan size helped
the non-standard mortgage market grow in 2005
- The volume of mortgage loans amounted to 355,000 in 2005
- The average advance declined slightly in 2005
- Fueled by increased competition, remortgaging continued to grow strongly
in 2005
- According to non-standard lenders, remortgaging accounts for 50 to 55
per cent of the market
- However, lenders experienced a more difficult second charge loans market
in 2005
- Non-standard second charge gross advances declined in 2005
- Yet the share of market considered to be non-standard grew
- Meanwhile, debt consolidation continues to be a major driver of the
market
CHAPTER 6 THE COMPETITIVE LANDSCAPE OF THE NON-STANDARD SECURED LENDING MARKET
- Introduction
- Specialist lenders dominate but mainstream lenders are encroaching upon
the non-standard mortgage market
- While the market has changed substantially, specialist lenders continue
to dominate the market
- A number of new lenders or investment banks entered the market in the
last year or so
- NatWest entered the market in that it became Royal Bank of Scotland's
specialist lending brand
- However mainstream lenders are playing an increasingly important role
- The requirement of a sophisticated risk model has traditionally acted
as a barrier to entry
- But mainstream lenders are increasingly willing to adapt their
business model to operate in the non-standard sector
- Most mainstream lenders tend to go into the near-prime sector
- However, the fear of a higher risk of mounting bad debt continues to
act as a deterrent to other mainstream lenders
- In terms of market share, the non-standard mortgage market is dominated
by a handful of players
- Most major players recorded growth over 2005 despite the market
slowdown
- The market is becoming increasingly competitive
- There are now more players vying for a share of the market
- More players are expected to enter the market over the next few years
- As a result, lenders are adapting their products and pricing to compete
successfully
- Lenders have been constructing or offering new products in order to
gain custom
- Lenders have been lowering their prices
- Lenders are also competing on service and other soft factors
- Moreover, a number of developments are gradually taking place in the market
- Regulation has had and will continue to have a number of effects on the
market
- MCOB regulations have been costly for all lenders
- Meanwhile, research has exposed a number of regulatory issues
- New legislation was passed in 2005
- Technology is becoming ever more sophisticated and crucial to success
- An increasing number of non-standard lenders are developing online
systems
- Moreover, as technology becomes more sophisticated, the method by
which to assess applications will become progressively more individualistic
- Procuration fees via intermediaries remains a highly contentious issue
- In the end, it is likely that procuration fees will be squeezed
- What's next for the market?
- The non-standard market is becoming more blurred with that of the
mainstream market
- UK lenders and investment banks are likely to look for non-standard
opportunities abroad
- GE and GMAC-RFC are two lenders that have non-standard lending
operations in Europe
CHAPTER 7 FORECASTING THE NON-STANDARD SECURED LENDING MARKET
- Introduction
- Datamonitor's non-standard secured lending forecasts are based on the
forecasting scenarios for the non-standard population created in the sister
report 'UK Non-standard and Sub-prime Consumers 2006'
- Datamonitor forecasts three scenarios for the non-standard mortgage market
- The methodology for the UK non-standard mortgage market incorporates
variation in mortgage penetration
- In Datamonitor's opinion, the non-standard mortgage market will slow but
to a lesser extent than in the mainstream market
- The UK mortgage market will grow slowly to £255.1 billion by
2007 before returning to a higher rate of growth
- The non-standard market will also slow, but will grow faster than the
mainstream market, to reach £47.6 billion in 2010
- Under a best case scenario, the non-standard mortgage market grows at
4.3 per cent per year
- House price growth continues to drive the UK mortgage market skywards
- The non-standard mortgage market grows at 4.3 per cent per year to
reach £44.1 billion in 2010
- Under a worst case scenario, the non-standard mortgage market will
contract significantly
- A fifteen per cent decline in house prices hits the UK mortgage market
in 2006
- The non-standard mortgage market contracts by 10.4 per cent in 2006
- Datamonitor's forecasts for the non-standard second charge loan market
also comprise three scenarios
- All three scenarios envision growth of the non-standard second charge
market
CHAPTER 8 APPENDIX
- Supplementary data
- Data tables relating to Chapter 3: Sizing the UK Non-standard Population
in 2005
- Data tables relating to Chapter 4: Overview of the Secured Lending
Market in 2005
- Data tables relating to Chapter 5: The Non-standard Secured Lending
Market
- Definitions
- AAGR
- Balances outstanding
- Bank of England base rate
- Buy-to-let mortgage
- CAGR
- CCJs
- Gross advances
- Loan-to-value (LTV)
- Mortgage intermediary
- Mortgage Network
- MPPI
- Non-standard
- Remortgaging
- Second charge loan
- Self-certification mortgage
- Research methodology
- Relevant readings
- Briefings
- Reports
- UK Mortgage Market Map 2006
- Key Features
- For futher information
- Future readings
- Relevant links
- Datamonitor's custom research capabilities
- The Retail Banking team
- How to contact experts in your industry
- List of Tables
- Table 1: Data required to estimate the number of non-standard households
in the UK
- Table 2: UK dwellings by tenure, 2001-2005e
- Table 3: Household tenure, 2005
- Table 4: The percentage of UK dwellings with a mortgage that is
accounted for by the non-standard population, 2001-2005
- Table 5: Recent competitive developments within the non-standard
mortgage market, September 2000 - March 2006
- Table 6: Building societies with a presence in the non-standard mortgage
market, April 2006
- Table 7: Overview of operating niche markets for major specialist
lenders, 2006
- Table 8: Specialist non-standard mortgage lenders ranked by total
mortgage gross advances, 2001e-2005e
- Table 9: Forecasted non-standard mortgage market gross advances compared
to the total market's gross advances under the Datamonitor's View scenario,
2005-2010f
- Table 10: Forecasted non-standard mortgage market gross advances
compared to total mortgage market gross advances under a best case scenario,
2005-2010f
- Table 11: Forecasted non-standard mortgage market gross advances
compared to total mortgage market gross advances under a worst case
scenario, 2005-2010f
- Table 12: Forecasted non-standard second charge loan gross advances
compared to total second charge gross advances for all three scenarios,
2005-2010f
- Table 13: UK non-standard population, 2001-2005e
- Table 14: UK Non-standard population forecasts according to
Datamonitor's View scenario, 2005e-2010f
- Table 15: Residential mortgage gross advances and annual percentage
change on same month in the previous year, January 2005 to December 2005
- Table 16: Number of loans advanced in the UK residential mortgage
market, January 2004 to December 2005
- Table 17: Halifax and Nationwide House Price Indexes average house
price, January to December 2005
- Table 18: Gross advances for loans for house purchase, remortgaging and
secured loans, Q1 2001- Q4 2005
- Table 19: Residential mortgage outstanding balances and gross advances,
2001-2005
- Table 20: Nationwide Consumer Confidence Index, March 2005-March 2006
- Table 21: House price to earnings ratio, Q1 2000 - Q1 2006
- Table 22: Gross advances for UK non-standard house purchases and
remortgaging, and the number of UK non-standard households, 2001-2005
- Table 23: Gross advances for UK non-standard second charge loans and the
proportion of the total market that is non-standard, 2004-2005
- Table 24: Gross advances for loans for house purchase and remortgaging
split by non-standard and mainstream sectors, 2001-2005
- Table 25: Second charge loan market gross advances, 2001-2005
- Table 26: Percentage of individuals with a mortgage by employment
status, 2005
- Table 27: Percentage of individuals with a mortgage by socio-economic
group, 2005
- List of Figures
- Figure 1: The UK non-standard population continues to decline, falling
to an estimated 9.1 million in 2005, 2001-2005e
- Figure 2: According to Datamonitor's View, the non-standard population
will gradually increase to 9.42 million by 2010, 2005e-2010f
- Figure 3: As expected, mortgage gross advances declined in 2005 from the
previous year, 2001-2005
- Figure 4: Gross advances for non-standard remortgaging continue to be a
major force, accounting for 45 to 50 per cent of business activities in 2005
- Figure 5: New business continued to grow for most major providers in
2005, 2004-2005
- Figure 6: In Datamonitor's opinion, the non-standard mortgage market
will reach £47.6 billion in 2010, 2005-2010f
- Figure 7: According to Datamonitor's View scenario, the non-standard
second charge market will grow to £3.3 billion by 2010, 2005-2010f
- Figure 8: Datamonitor covers the non-standard and sub-prime lending
market in 2006 with a suite of three published reports
- Figure 9: Datamonitor's definition of non-standard
- Figure 10: A certain degree of subjectivity is needed in a definition of
the non-standard population because some mainstream lenders are inevitably
willing to accept greater risk than others
- Figure 11: Common terms used to refer to the circumstance defined by
Datamonitor as "non-standard"
- Figure 12: Sub-prime consumers represent a segment of the non-standard
population
- Figure 13: The UK non-standard population continues to decline, falling
to an estimated 9.1 million in 2005, 2001-2005e
- Figure 14: According to Datamonitor's neutral forecast, the non-standard
population will gradually increase to 9.42 million by 2010, 2005e-2010f
- Figure 15: Gross advances and annual percentage change on a monthly
basis show that the UK mortgage market was stabilizing, January 2005 to
December 2005
- Figure 16: The volume of mortgage loans increased since its bottoming
out in January 2005, January 2004 to December 2005
- Figure 17: On the whole, house price growth was positive, January to
December 2005
- Figure 18: Loans for house purchases hit a low point in Q1 2005, but
expanded thereon, Q1 2001 to Q4 2005
- Figure 19: The second charge loan market has not recovered from growth
since 2003, 2001-2005e
- Figure 20: While mortgage gross advances declined in 2005 from the
previous year, it performed well above expectations, 2001-2005
- Figure 21: Gross lending in Q1 2006 exceeded that of Q1 2004 by 9.3 per
cent, Q1 2003-2006
- Figure 22: House price to earnings ratio is expected to have risen again
in Q1 2006, 2000- Q1 2006
- Figure 23: Consumer confidence remains low and unstable, March
2005-March 2006
- Figure 24: Excluding segments of the population not relevant to an
estimation of the UK non-standard mortgage market
- Figure 25: Methodology used to calculate the number of non-standard
households in the UK
- Figure 26: Households eliminated in Datamonitor's estimation of
non-standard households with a mortgage
- Figure 27: The self-employed population are much more likely to have a
mortgage that the unemployed population, 2005
- Figure 28: DE households are easily the least likely socio-economic
group to own their property with a mortgage, 2005
- Figure 29: Compared to the mainstream market, a much greater proportion
of non-standard households are rented from local authorities and far fewer
are owned with a mortgage, 2005
- Figure 30: The average mortgage loan advanced to self-employed borrowers
is actually higher than the average advance across the UK mortgage market as
a whole, 2005
- Figure 31: Individuals who are self-employed or have a CCJ record
account for over half of the second charge market, 2005
- Figure 32: The non-standard mortgage market grew in 2005 despite a
further decline in the number of non-standard households, 2001-2005
- Figure 33: The non-standard mortgage market continues to grow faster
than the mainstream market, 2003-2005
- Figure 34: Growth in non-standard house mortgage volumes recovered in
2005, 2001-2005
- Figure 35: While the average non-standard mortgage advance has risen
significantly over the past five years, it dropped for the first time in
2005, 2001-2005
- Figure 36: Gross advances for non-standard remortgaging continue to be a
major force, accounting for 45 to 50 per cent of business activities in 2005
- Figure 37: While the non-standard second charge market declined over
2005, the share of the market that is non-standard increased, 2004-2005
- Figure 38: Debt consolidation is the most common reason for taking out a
second charge loan, 2003
- Figure 39: New business continued to grow for most major non-standard
mortgage providers in 2005e, 2004e to 2005e
- Figure 40: In Datamonitor's opinion, the non-standard mortgage market
will reach £47.6 billion in 2010, 2005-2010f
- Figure 41: Under an optimistic view, the mainstream mortgage market
performs better than the non-standard mortgage market, 2005-2010f
- Figure 42: Under a pessimistic view, the non-standard mortgage market
contracts significantly but a bigger impact is felt in the mainstream
market, 2005-2010f
- Figure 43: All three scenarios envision growth of the non-standard
second charge market by 2010, 2005-2010f
- Figure 44: The UK Mortgage Market Map 2006 covers a wide range of
mortgage sectors
- Figure 45: Taxonomy of UK Mortgage Market Map 2006
- Figure 46: Datamonitor's core consulting capabilities
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