Report: Specialist Mortgage Lending - UK

Issues in the Market
In this report, Mintel asks...
Report scope and definitions
Types of borrower
Abbreviations
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
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
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

Specialist Mortgage Lending - UK - September 2009