Report: UK Self-certification Mortgages 2007 (Segment Report) TOC

Overview
- Catalyst
- Summary
Executive summary
- Self-certification mortgages explained
- There are two major types of player in theself-certification mortgage market
- The self-certification mortgage market grew at an annualaverage rate of 17.8 per cent from 2002 to 2006
- HBOS is the leading player in the self-certificationmortgage market
- A more competitive market has led to self-certificationmortgage rates falling despite repeated base rate increases over the lasttwo years
- In the Datamonitor' s View scenario, gross advances forself-certification mortgages continue to grow strongly and outperformincome verified mortgages
Table of Contents
Table of figures
Table of tables
An introduction to the self-certification mortgage market
- Self-certification mortgages explained
  - With a self-certification mortgage, the lender requireslittle or no proof of the borrower' s income
    - A self-certification mortgage is a catch-all product aimedat borrowers who cannot or choose not to verify their income
  - Self-certification mortgages fall into the category' income non-verified' mortgage lending products
    - Are fast-track mortgages self-certification mortgages indisguise?
- The UK self-certification mortgage market was worth £17.3billion in 2006
  - Methodology used in sizing the UK self-certificationmortgage market
    - Step one: sizing the self-certification population
    - Step two: converting to households
    - Step three: converting to households owned with anoutstanding mortgage
    - Step four: calculating proportion of total population withself-certification mortgage
    - Step five: calculating self-certification mortgage grossadvances
  - The self-certification mortgage market grew at an annualaverage rate of 17.8 per cent from 2002 to 2006
    - Year-on-year growth reveals that the self-certificationmortgage market recovered in 2006 after underperforming in 2005
  - In terms of customer groups, the self-employed were thebiggest contributors to the self-certification mortgage market
    - The self-employed accounted for 71.0 per cent of grossself-certified mortgage lending in 2006
    - Fixed-term contract employees accounted for 23.0 per centof gross mortgage lending
  - The average annual growth of self-certification mortgagesoutpaced that of income verified mortgage lending during the period 2002to 2006
    - Self-certification mortgages have continuously gainedmarket share over the last five years
- Various factors have contributed to the growth of theself-certification mortgage market
  - Strong macroeconomic conditions have created anenvironment that has led to the growth in the self-certification mortgagemarket
  - Furthermore, factors specific to the self-certificationmortgage market have enhanced this market further
- However, a few issues may impact on the future of theself-certification mortgage market
  - Borrowers are still overstating their incomes leaving themat a higher risk of defaulting
    - A new investigation into the self-certification mortgagemarket has been announced by the FSA to ensure intermediaries are meetingminimum standards
    - Intermediaries are worried about their exposure to fraud
    - There is a fear that as the self-certification mortgagemarket becomes increasingly mainstream fraud will increase
  - The self-certification mortgage market is more susceptibleto a downturn in economic conditions than the mainstream mortgage market
    - High levels of consumer indebtedness may impact on theself-certification mortgage market
- Conclusions
The competitive landscape of the self-certificationmortgage market
- There are two major types of player in theself-certification mortgage market
- Specialist lenders are the leaders in theself-certification mortgage market
  - Self-certification is often associated with non-standardmortgage lending
  - 22 of the 38 of lenders operating in theself-certification mortgage sector are specialist lenders
  - HBOS is the leading player in the self-certificationmortgage market
    - A strong intermediary relationship is behind BM Solutions' success
  - While specialist players dominate this niche sector,mainstream players are increasingly competing in the self-certificationmortgage market via fast-track lending
- The self-certification mortgage market is becoming morecompetitive
  - A more competitive market has led to self-certificationmortgage rates falling despite repeated base rate increases over the lasttwo years
  - Lenders are becoming more flexible with LTV ratios
    - Specialist lenders have had to become more flexible withthe LTVs they offer partly because mainstream lenders offering fast-trackmortgages are encroaching on the self-certification mortgage market
  - Lenders are now offering self-certification mortgages in avariety of mortgage markets
- Intermediaries are crucial to the development of theself-certification mortgage market
  - The majority of intermediaries advise on theself-certification mortgage market
  - Most self-certification mortgage business comes viaintermediaries
    - Intermediaries typically saw their self-certificationmortgage business grow or remain stable in 2006
    - Furthermore, the majority of intermediaries believe thatthe self-certification mortgage market will continue to grow
  - It is therefore important that lenders considerintermediaries when developing their self-certification offerings
    - Lenders should provide a good service and quality productsto attract intermediaries
  - The majority of brokers try to obtain a fast-trackmortgage for their client before they suggest a self-certificationmortgage
    - Indeed, a large proportion of intermediary business comesfrom fast-track lending
    - Generally intermediaries do not consider fast-tracklending to be a negative influence on the self-certification mortgagemarket
- Conclusions
Forecasting the self-certification mortgage market
- Datamonitor' s forecasting model assesses the factors thathave impacted and will impact the self-certification mortgage market
  - Macroeconomic factors and factors specific to theself-certification mortgage market are included in the forecasting model
- Under the Datamonitor' s View scenario, gross advances forself-certification mortgages continue to grow strongly and outperformincome verified mortgages
  - Self-certification mortgage gross lending will grow at anannual average rate of 8.5 per cent from 2007 to 2011 to reach £27.3billion in 2011
  - Under the Datamonitor' s View scenario, theself-certification mortgage market gains share over the income-verifiedlending sector
- Under the Best Case scenario, the growth of theself-certification mortgage market progresses rapidly
  - Self-certification mortgage gross lending will progress atmore than three times the rate of gross lending in the income verifiedmortgage market
  - Under the Best Case scenario, the self-certificationmortgage market will gain 3.2 percentage points in market share
- Under the Worst Case scenario, the self-certificationmortgage market will also expand but growth will be slower
  - The self-certification mortgage market will fairmarginally better than the income verified mortgage market under the WorseCase scenario
  - In the Worst Case scenario, the self-certificationmortgage market share remains stable at around 5.0 per cent
- Conclusions
APPENDIX
- Supplementary data
- Definitions
  - Bank of England base rate
  - Buy-to-let
  - CAGR
  - Gross advances
  - Loan-to-value (LTV)
  - Non-standard customer
  - Remortgaging
  - Right to buy
  - Self-certification mortgage
- Methodology
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
List of Tables
- Table 1: Market share of self-certification mortgages,2002-2006
- Table 2: Lenders offering self-certification mortgages,March 2007
- Table 3: Average self-certification interest rate, March2001 - March 2007
- Table 4: Niche mortgage markets where self-certificationis available as an option, April 2007
- Table 5: Self-certification and income verified marketshares under the Datamonitor' s View scenario, 2006-2011f
- Table 6: Self-certification and income verified marketshares under the Best Case scenario, 2006-2011f
- Table 7: Self-certification and income verified marketshares under the Worst Case scenario, 2006-2011f
- Table 8: Gross advances under the self-certificationmortgage market split by self-certification and income verified lending,2002-2006
- Table 9: Proportion of self-certification mortgagemarket split by employment classification, 2002-2006
- Table 10: Indexed gross advances of self-certification,income verified and total mortgage market, 2002-2006
- Table 11: Factors affecting intermediaries' choice ofself-certification lender, 2007
- Table 12: Intermediaries' views on the effect offast-track lending on the self-certification mortgage market, 2007
- Table 13: Forecast gross advances underself-certification lending as compared to the total mortgage market,2007f-2011f
List of Figures
- Figure 1: The structure of the self-certificationmortgage market, July 2005
- Figure 2: The self-certification mortgage market wasworth £17.3 billion in 2006, 2002-2006
- Figure 3: The average interest rate onself-certification mortgages has become more attractive, March 2001 -March 2007
- Figure 4: In the Datamonitor' s View scenario, theself-certification mortgage market will continue to outperform the incomeverified mortgage sector, 2006-2011f
- Figure 5: The self-certification mortgage market wasworth £17.3 billion in 2006, 2002-2006
- Figure 6: The self-certification mortgage market grewstrongly in 2006 after stalling in 2005, 2003-2006
- Figure 7: The majority of self-certification grosslending was accounted for by the self-employed, 2002-2006
- Figure 8: The majority of self-certification mortgagecustomers are self-employed, 2007
- Figure 9: The growth of the self-certification mortgagemarket was significantly faster than the growth of the income verifiedmortgage market, 2002-2006
- Figure 10: Intermediaries still consider income fraud tostill be an issue in the self-certification mortgage market, 2007
- Figure 11: A fifth of self-certification mortgages aretaken by first-time-buyers, 2007
- Figure 12: Two-thirds of intermediaries think thatrecent rises in base rate will have little effect on theself-certification mortgage market, 2007
- Figure 13: The structure of the self-certificationmortgage market, April 2007
- Figure 14: HBOS is the leading lender in theself-certification mortgage market, 2006
- Figure 15: The average interest rate onself-certification mortgages has become more attractive, March 2001 -March 2007
- Figure 16: The majority of intermediaries advise onmortgages on a self-certification basis, 2006
- Figure 17: The intermediary channel generated £15.6billion in new lending in 2006
- Figure 18: In 2006, self-certification mortgage businessfor intermediaries was typically stable or saw slight growth, 2007
- Figure 19: The majority of intermediaries foresee steadygrowth in the self-certification mortgage market, 2007
- Figure 20: Providing a good quality of service andcompetitively priced products is the best way for lenders to attractintermediaries, 2007
- Figure 21: A large part of intermediaries business comesfrom fast-track lending, 2007
- Figure 22: On the whole intermediaries think thatfast-track lending does not have a negative influence on theself-certification mortgage market, 2007
- Figure 23: In the Datamonitor' s View scenario, theself-certification mortgage market will continue to outperform the incomeverified mortgage sector, 2006-2011f
- Figure 24: In the Best Case scenario, gross advances forself-certification mortgages will grow at an annual average rate of 13.2per cent, 2006-2011f
- Figure 25: In the Worst Case scenario, theself-certification mortgage market will fare better than the incomeverified mortgage market, 2006-2011f

UK Self-certification Mortgages 2007 (Segment Report)

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