Table of Contents
- Overview
- Executive Summary
- The sub-prime mortgage market in 2006 and future outlook
- The sub-prime mortgage market experienced yet another good year in 2006
- Sub-prime mortgage individuals are at the least worthy end of the
credit spectrum
- The number of sub-prime mortgage individuals reached 4.2 million in
2006
- The sub-prime mortgage market grew by 28 per cent in gross advances
in 2006
- A strong mortgage market and rising sub-prime population were key to
the market' s growth
- Moreover, the future outlook of the market looks bright
- In Datamonitor' s opinion the sub-prime mortgage market will slow,
but will grow faster than the mainstream mortgage market
- Competitive dynamics of the sub-prime mortgage market
- Increased competition has led to the emergence of a number of
individual sub-markets
- The near-prime segment has become the largest and most competitive
sub-segment in the sub-prime mortgage market
- The medium/heavy segment is smaller, and in turn, somewhat less
competitive
- In terms of gross advances share, the sub-prime mortgage market is
still dominated by specialist players
- GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead
the pack
- Players must adopt new ways of competing in a more saturated market
- Issues in the sub-prime mortgage market
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- Such a situation could be unsafe given that lenders have been taking
on more risk in the last few years
- Events in the US sub-prime mortgage market hit many lenders by surprise
- With high levels of indebtedness, the UK does merit some concern
- The UK sub-prime mortgage market is likely to avoid a similar fate
given its significant differences
- Lenders should nonetheless take events in the US as a lesson learned
- The sub-prime mortgage market is now under regulatory scrutiny
- Table of Contents
- Table of figures
- Table of tables
- The UK sub-prime mortgage market in 2006 and future outlook
- The UK sub-prime mortgage market experienced yet another good year in
2006
- Sub-prime mortgage individuals are at the least worthy end of the
credit spectrum
- There are a number of drivers that affect the size of the sub-prime
mortgage population
- Sub-prime individuals are part of a broader population of
non-standard individuals
- The sub-prime mortgage population is now on the rise after a number of
years of decline
- The economic environment was more difficult for consumers because of
high household debt
- As a result, the number of sub-prime mortgage individuals reached
4.2 million in 2006
- The sub-prime mortgage market grew by 28 per cent in gross advances in
2006
- The sub-prime mortgage market continues to outperform the mainstream
market
- Moreover, the sector accounted for 7.1 per cent of the market in 2006
- Remortgaging accounts for around half of advances in the sub-prime
mortgage market
- A strong mortgage market and rising sub-prime population were key to the
market' s growth
- A healthy mortgage market in general helped to drive the sub-prime
mortgage market forwards
- House prices performed better than expected in 2006
- The sub-prime mortgage population is now on the rise
- Consumers are becoming increasingly aware of the sub-prime sector
- Although in percentage terms, consumer awareness remains low
- Moreover, the future outlook of the UK sub-prime mortgage market looks
bright
- The methodology for the UK sub-prime mortgage market incorporates
variation in mortgage penetration
- Datamonitor forecasts three scenarios for the sub-prime mortgage market
- In Datamonitor' s opinion the UK sub-prime market will slow, but will
grow faster than the mainstream market
- In a best case scenario, the sub-prime market grows more slowly than
the mainstream market
- In a worst case scenario, the sub-prime mortgage market will
contract significantly
- Competitive dynamics of the UK sub-prime mortgage market
- The market is host to specialists, mainstream lenders and investment
banks
- While the market has changed substantially, specialist lenders
continue to dominate the market
- Investment banks began to get involved in 2000
- Mainstream lenders have also entered the market
- In particular, building societies have increased their presence in
the non-standard market, mainly through small players
- In terms of gross advances share, the market is still dominated by
specialist players
- GMAC-RFC, GE Money Home Lending and Kensington Mortgage Group lead the
pack
- Most lenders had a successful year in 2006
- The sub-prime mortgage market has become increasingly competitive
- Increased competition has led to the emergence of a number of
individual sub-markets
- The near-prime segment has become the largest and most competitive
sub-segment in the sub-prime mortgage market
- The market now has a large number of players
- It appears that there are now too many players for the size of the
market
- The medium/heavy segment is smaller and somewhat less competitive
- The medium/heavy sub-prime sector has fewer participating lenders
- While competition has intensified, it is not yet at the same stage
as that of the near-prime sector
- Moreover, packagers dominate this market, in contrast to brokers in
the near-prime market
- In fact, technology is not used to the same degree either
- But this segment could see a rise in custom in a few years' time,
with competition tightening too
- Meanwhile, pricing has become progressively tougher
- As a result, margins have been falling
- Going forward, established lenders in particular will need to
readjust their models and expectations
- Players must adopt new ways of competing in a more saturated market
- Cost efficiency and funding will become crucial to overall success
- The packaging industry will come under consolidation
- Some lenders will look to expand into other markets
- Some lenders will enter European sub-prime mortgage markets
- Other lenders are looking to enter the UK commercial mortgage market
- Issues in the UK sub-prime mortgage market
- By loosening their criteria, lenders are taking on more risk as
household debt remains high
- Consumers continue to hold significant debts
- Such a situation could be unsafe given that lenders have been taking
on more risk in the last few years
- But most believe that the situation is under control
- Some of the newer lenders may be the ones taking on most risk
- Events in the US sub-prime mortgage market hit many lenders by surprise
- A significant number of sub-prime mortgage firms are now in financial
trouble
- Such a situation points to lenders who became too aggressive
- With high levels of indebtedness, the UK does merit some concern
- The UK sub-prime mortgage market is likely to avoid a similar fate
given its significant differences
- It appears that as of yet, lenders have not changed their overall
risk strategy
- Yet some remain anxious
- Lenders should take the US events as a lesson learned nonetheless
- The sub-prime mortgage market is now under heavier regulatory scrutiny
than before
- The FSA found a mixed picture of sub-prime mortgage broker compliance
in late 2006
- It is too early to speculate, but the FSA may end up implementing new
regulation of sub-prime lenders
- Moreover, lenders are wary of the European Commission' s possible plans
for mortgage market integration
- Lenders are waiting for the White Paper in September 2007
- Mortgage redemptions will become a drain on profits for those who depend
on them
- Sub-prime customers are becoming increasingly financially sophisticated
- Such a trend is impacting lenders' profits
- Conclusions
- APPENDIX
- Supplementary data
- Data tables for chapter ' The Sub-prime Mortgage Market in 2006 and
Future Outlook'
- Data tables for chapter ' Issues in the Sub-prime Mortgage Market'
- Data tables for sizing methodologies
- Definitions
- AAGR
- Balances outstanding
- Bank of England base rate
- CAGR
- CCJs
- Gross advances
- LIBOR
- Loan-to-value (LTV)
- Mortgage intermediary
- Non-standard
- Remortgaging
- Second charge loan
- Sub-prime
- Methodology
- Sizing methodology for the UK non-standard population
- Reasons for credit rejection
- Elimination of double counting
- Datamonitor uses seven steps to size the UK non-standard population
- Bankruptcies are excluded because of double counting
- Sizing methodology for the sub-prime mortgage population
- Elimination of double counting
- Five steps are used to size the UK sub-prime mortgage population
- Bankrupts are excluded because of double counting
- Sizing methodology for the UK sub-prime mortgage market
- Step 1: Estimating the number of sub-prime households in the UK
- Step 2: Estimating the number of sub-prime households with a mortgage
- Step 3: Calculating the percentage of UK dwellings with a mortgage
that is accounted for by the sub-prime mortgage population
- Step 4: Estimating the value of the sub-prime mortgage market
- Step 5: Adding in the self-certified sub-prime segment of the market
- Step 6: Comparing the total to market shares of major UK sub-prime
mortgage providers
- Further reading
- Relevant links
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: UK non-standard population, 2002-2006
- Table 2: Number of sub-prime mortgage individuals and their share of
the total working population, 2002-2006
- Table 3: Number of mortgage repossessions and arrears, 2002-2006
- Table 4: Sub-prime mortgage market advances and the number of
sub-prime mortgage households, 2002-2006
- Table 5: Forecasted UK sub-prime mortgage market gross advances
compared to the total UK mortgage market' s gross advances and the UK
sub-prime mortgage population under the Datamonitor' s View scenario,
2006-2011f
- Table 6: Forecasted UK sub-prime mortgage market gross advances
compared to the total UK mortgage market' s gross advances and the UK
sub-prime mortgage population in a best case scenario, 2006-2011f
- Table 7: Forecasted UK sub-prime mortgage market gross advances
compared to the total UK mortgage market' s gross advances and the UK
sub-prime mortgage population in a worst case scenario, 2006-2011f
- Table 8: List of sub-prime mortgage lenders, May 2007
- Table 9: Number of CCJs registered and on record, 1987-2006
- Table 10: Number of properties carrying an arrears or repossession
record, 1997-2006
- Table 11: Number of bankruptcies in England and Wales
- Table 12: Year-on-year growth of the sub-prime, mainstream and total
mortgage markets, 2003-2006
- Table 13: UK mortgage market quarterly and annual gross advances,
2002-2006
- Table 14: Annual house price growth on a quarterly basis, Q1 2003-Q4
2006
- Table 15: Secured and unsecured debt-write offs by banks to
individuals, December 2001-December 2006
- Table 16: Percentage of individuals with a mortgage by employment
status, 2006
- Table 17: Percentage of individuals with a mortgage by socio-economic
group, 2006
- Table 18: Mortgage advances by group, indexed to the UK average, 2006
- Table 19: UK dwellings by tenure, 2002-2006e
- Table 20: Household tenure, 2006
- Table 21: The percentage of UK dwellings with a mortgage that is
accounted for by the sub-prime mortgage population, 2002-2006
- List of Figures
- Figure 1: Sub-prime individuals are part of a broader population of
non-standard individuals, 2007
- Figure 2: The number of sub-prime mortgage population is on the rise,
2002-2006
- Figure 3: The sub-prime mortgage market had another solid year in
2006, 2002-2006
- Figure 4: In Datamonitor' s opinion the sub-prime mortgage market will
reach £31.5 billion by 2011f, 2006-2011f
- Figure 5: A certain degree of subjectivity is needed when
differentiating groupings in the sub-prime mortgage market because some
lenders are inevitably willing to accept greater risk than others, 2007
- Figure 6: GMAC-RFC, GE Money Home Lending and Kensington Mortgage
Group lead the sub-prime mortgage market in terms of gross advances, 2006
- Figure 7: Drivers of the sub-prime mortgage population and their
consequences, 2007
- Figure 8: Sub-prime individuals are part of a broader population of
non-standard individuals, 2007
- Figure 9: The number of sub-prime mortgage population is on the rise,
2002-2006
- Figure 10: The number of CCJs on record increased for the first time
since 1995, 1987-2006
- Figure 11: Arrears and repossessions on record have continued to
decline but it may not be long until they begin to rise once again,
1997-2006
- Figure 12: Bankruptcies have continued to increase in recent years,
1997-2006
- Figure 13: The sub-prime mortgage market had another solid year in
2006, 2002-2006
- Figure 14: The sub-prime mortgage market continues to outperform the
mainstream market, 2003-2006
- Figure 15: Gross advances in the UK mortgage market were at a
record-breaking level in 2006, 2002-2006
- Figure 16: Data from both Halifax and Nationwide highlights that house
price growth picked up in 2006 after appearing to cool down in 2005 , Q1
2003 - Q4 2006
- Figure 17: In Datamonitor' s opinion the UK sub-prime mortgage market
will reach £31.5 billion by 2011f, 2006-2011f
- Figure 18: Under an optimistic view, the sub-prime mortgage market
will reach £29.9 billion by 2011f, 2006-2011f
- Figure 19: Under an pessimistic view, the sub-prime mortgage market
will reach £24.1 billion by 2011f, 2006-2011f
- Figure 20: GMAC-RFC, GE Money Home Lending and Kensington Mortgage
Group lead the sub-prime mortgage market in terms of gross advances, 2006
- Figure 21: A certain degree of subjectivity is needed when
differentiating groupings in the sub-prime mortgage market because some
lenders are inevitably willing to accept greater risk than others, 2007
- Figure 22: The average UK adult owed £4,522 in unsecured personal debt
at the end of 2006, 2002-2006
- Figure 23: The number of secured and unsecured debt-write offs by
banks has continued to increase in the UK, December 2001-December 2006
- Figure 24: It is important to exclude segments of the population not
relevant to an estimation of the UK sub-prime mortgage market
- Figure 25: Methodology used to calculate the number of sub-prime
households in the UK
- Figure 26: Households eliminated in Datamonitor' s estimation of
sub-prime households with a mortgage
- Figure 27: The self-employed population are much more likely to have a
mortgage than the unemployed population, 2006
- Figure 28: DE households are easily the least likely socio-economic
group to own their property with a mortgage, 2006
- Figure 29: Compared to the mainstream market, a much greater
proportion of sub-prime households are rented from local authorities and
far fewer are owned with a mortgage, 2006
- 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, 2006
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