Table of Contents
- Issues in the Market
- Historical context
- Scope of the report
- Key issues examined
- Market Definitions
- Abbreviations
- Market in Brief
- The ' non-standard' market comprises a broad range of borrower types
- Figure 1: Lending risk categories and examples of non-standard mortgage
products, 2007
- Shifting demographics and behaviours expand the market
- New companies have emerged to cater for these changing needs...
- ...but the recent credit crunch halts further product development
- Leading brands in the sector
- Non-standard business accounts for a third of total mortgage lending
- The wider mortgage market
- More difficult times ahead
- Regulatory pressures set to intensify
- Key consumer research findings: identifying the non-standard consumer
- Figure 2: Proportion of adults who meet the main non-standard lending
criteria, July 2007
- Applying for a mortgage
- Internal Market Environment
- Key Points
- US sub-prime meltdown...
- ...and financial market contagion...
- ...lead to consumer panic and crisis at Northern Rock
- Pulling down the shutters
- Rate shock
- Figure 3: Bank rate and BBA LIBOR, March-September 2007
- Sub-prime and self-cert sectors come under the regulatory microscope
- FSA study into sub-prime results in five firms facing enforcement action
- Treating Customers Fairly
- Consumer Credit Act, 2006 will boost opportunities in secured loans market
- Keeping up with the changing needs of borrowers
- Pricing risk in a climate of rising indebtedness
- Debt is a way of life for around half the population
- The Easy-debt Society
- Companies starting to share customer information
- Debt judgements hit ten-year high
- Figure 4: Consumer CCJs (excluding DVLA judgements) registered 2002-07*
- Implication
- Majority of people dislike being in debt
- Figure 5: Agreement with selected financial lifestyle statements,
1993-2006
- The threat of escalating mortgage debt write-offs
- Figure 6: Mortgage debt write-offs and arrears, 2002-07
- Home repossessions on the rise
- Figure 7: Mortgage possession actions, 1990-07
- Implication
- Individual insolvencies spiral upwards
- Figure 8: Individual bankruptcies and IVAs in England and Wales (not
seasonally adjusted) 1998-2007
- Tackling over-indebtedness
- The growth in debt consolidation
- Broader Market Environment
- Key Points
- Clouds loom over the UK economy
- Figure 9: Total PDI, consumer expenditure and savings, 2003-12
- Implication
- Sharp drop in borrowing activity
- Figure 10: Expected savings, investment and borrowing activity -- Q3/Q4
2002-Q3/Q4 2007
- Still bright employment picture
- Figure 11: Workforce employed and self-employed -- UK, 2000-07
- Implications
- The debt mountain edges up higher
- Figure 12: Consumer credit outstanding and secured borrowings 1997-2007
- Implications
- Average household debt over £53,000Figure 13: PDI, Total loans
outstanding, Total debt/PDI, Average household debt and consumer debt write
offs, 2002-07
- Are interest rates taking effect?
- Figure 14: Consumer confidence and bank rates 1988-2007
- The role of LIBOR comes to the fore
- Mortgage rate rise
- Figure 15: Mortgage rates, 2002-07
- Implications
- Signs of a slowdown
- HIP invasion
- Affordability
- The London effect
- House price growth set to moderate...
- ...but BTL may flourish
- Competitive Context
- Key Points
- Firm growth in mortgage demand
- Specialist lenders taking market share
- Figure 16: Mortgage Approvals all lenders and specialist lenders,
2002-H1 2007
- Specialist lenders have a greater focus on house purchase
- Figure 17: Mortgage Approvals all lenders and specialist lenders 2002-H1
2007
- Specialist lenders' share of the main mortgage sectors
- Figure 18: Specialist lenders market share by mortgage type, 2002-7
- Outlook
- Growth rate of consumer credit slowing down
- Figure 19: Consumer lending 12-month growth rates*, March 2002-June 2007
- Changing shape of non-standard specialists
- Strengths and Weaknesses in the Market
- Growing demand offset by tougher operating environment
- Figure 20: Summary SWOT analysis of the non-standard market, 2007
- Unchartered waters beckon, unless interest rates fall suddenly
- Financial risks facilitate the need for consumer education
- Market Size and Forecast
- Key Points
- Sizing the non-standard population
- Figure 21: Size of the non-standard population, 2007
- A sizeable minority relying on non-standard providers
- Figure 22: Breakdown of use of mainstream and non-standard/specialist
providers, July 2007
- The post-Northern Rock Environment
- Credit scoring
- Most have an unblemished record
- Figure 23: Credit scoring in the British population, August 2007
- From squeaky clean to torpedoed prime
- Figure 24: Credit risk groups, by demographic group, July 2007
- Forecasting the non-standard market
- The Stationary Demographic Scenario
- Figure 25: Future changes in credit score groups based on demographic
trends, 2007 & 2012
- Shifting definitions
- Gainers and losers -- The Squeeze Scenario
- Almost a million could be lost...
- ...but the gains could be greater
- This means a 2008 potential consumer base of 17.83 million
- Gainers and losers -- The Tight Squeeze Scenario
- The more restrictive -- the better it is for the non-standard sector
- A tighter squeeze better for number of potential customers
- Figure 26: Forecast scenarios of non-standard potential consumer base,
according to severity of credit squeeze, 2007 & 2012
- Segment Performance
- Key Points
- Roughly two in five mortgages are ' non-standard'
- Figure 27: Estimated breakdown of the UK mortgage market -- number of
outstanding prime versus non-standard mortgages, 2006 and 2007
- Gross mortgage lending picks up strongly in 2006
- Figure 28: Gross mortgage advances, by type of loan, (not seasonally
adjusted), 2001-07
- Total non-standard mortgage market worth £125 billion in 2007Figure 29:
Gross non-standard mortgage lending, by type of loan, 2006-07
- Little impact of rising interest rate on BTL sector
- Affordable housing
- Shared-ownership schemes
- A niche sector set for further expansion
- Right-to-Buy
- Self-certification
- Self-cert and fast track mortgages a cause for concern?
- Full range of products
- Sub-prime -- US contagion set to spread to UK
- Figure 30: Recent changes in sub-prime borrowing rates and criteria, 2007
- Mounting arrears and repossessions likely -- calls for greater regulation
inevitable
- Market Share
- Key Points
- HBOS is the leader of the pack, by a wide margin
- Figure 31: Lenders' share of UK mortage market, by gross advances,
2005-06
- Non-standard specialists grew their balances strongly in 2006
- Figure 32: Lenders' share of UK mortage market, by balances outstanding,
2005-6
- Changes afoot?
- Companies and Products
- Key Points
- Some 30 lenders operate in the non-standard mortgage market
- Figure 33: Summary of the main providers of non-standard mortgages in
the UK, August 2007
- Recent entrants
- The largest non-standard lenders
- Birmingham Midshires
- GMAC-RFC
- GE Money Home Lending
- Kensington Mortgages
- Mortgage Express
- Other significant players
- Debt consolidation companies prosper
- Leading suppliers
- Brand Communication and Promotion
- Key Points
- Non-standard mortgage brands will mean little to consumers
- Poor financial promotion in sub-prime sector
- Most non-standard specialists target their advertising at IFAs and brokers
rather than consumers
- Specialist mortgages account for just 1% of total mortgage adspend
- Figure 34: Mortgage adspend, by product sub-category, May 2007
- The largest specialist mortgage advertisers have budgets around £0.5
million
- Figure 35: Leading specialist mortgage advertisers, years to May 2006 and May 2007
- Figure 36: Mortgage adspend, by outlet type, year, May 2007
- Implication
- More advertising for secured than unsecured personal loans
- Figure 37: Personal loan adspend, by type, 2002-07
- Implication
- Picture Financial -- largest-ever financial start up growing its presence
in secured loans market
- Figure 38: Leading advertisers in the secured personal loans sector,
years to May 2006 and May 2007
- Channels to Market
- Key Points
- Most non-standard business is generated via intermediaries...
- ... referrals come mainly from IFAs, mortgage brokers, packagers, and
mortgage clubs
- Packagers provide a supporting role to brokers and lenders
- Online developments at heart of distribution
- Online revolution
- The Consumer -- Credit Ownership and Usage
- Key Points
- Credit cards and mortgages most-widely-held credit products
- Figure 39: Ownership of selected financial products, July 2007
- 25-45-year-olds biggest users of credit; 55-64-year-olds taken most to
plastic cards
- Figure 40: Ownership of selected financial products, by gender, age,
socio-economic group, marital status and lifestage, July 2007
- Family lifestage key to the mortgage market
- Figure 41: Ownership of selected financial products, by socio-economic
group, work status, income, housing tenure, and region, July 2007
- MPPI -- giving non-standard lenders a degree of safety?
- Figure 42: Ownership of selected financial products, by technology and
media preferences, July 2007
- The importance of cross-selling
- Figure 43: Sources of credit used, July 2007
- Four-fifths of borrowers use mainstream lenders
- Figure 44: Breakdown of use of mainstream and non-standard/specialist
providers, July 2007
- Young people, DEs, and families more likely to use non-standard lenders
- Figure 45: Breakdown of use of mainstream and non-standard providers, by
gender, age, social class, and lifestage, July 2007
- People likely to be struggling financially are more likely to use
non-standard lenders
- Figure 46: Breakdown of use of mainstream and non-standard providers,
Household income, working status, tenure, and marital status, July 2007
- Scotland has the highest proportion of consumer credit borrowers
- Figure 47: Breakdown of use of mainstream and non-standard providers, TV
Region and ACORN analysis, July 2007
- All ' new' media users most likely to borrow
- Figure 48: Breakdown of use of mainstream and non-standard providers, by
Technology and Media preferences, July 2007
- Implications and opportunities
- Car and home improvements top credit usage
- Figure 49: Reasons for borrowing money, July 2007
- Mainstream lenders used most for car purchase, non-standard lenders most
for essential household items
- Figure 50: Reasons for borrowing money, mainstream and non-standard
providers, July 2007
- Implications and opportunities
- The Consumer -- Credit Risk Factors
- Key Points
- A large proportion of the population falls outside prime lending criteria
- Figure 51: Credit risk factors, July 2007
- Older age groups have higher credit risk
- Figure 52: Credit risk factors, by age, July 2007
- Similar incidence of impaired credit factors amongst C1, C2 and Ds
- Figure 53: Credit risk factors, by gender and socio-economic group, July
2007
- More credit impairment in lower income bands
- Figure 54: Credit risk factors, by income, July 2007
- Higher incidence of credit impairment in Scotland
- Figure 55: Credit risk factors, by region, July 2007
- Implications and opportunities
- Some 4.3 million people may struggle to get a mainstream mortgage
- Figure 56: Ability to obtain new mortgage/remortgage, July 2007
- Lack of income a major constraint for first-time buyers and singles
- Figure 57: Ability to obtain new mortgage/remortgage, by gender, age,
socio-economic group and marital status, July 2007
- ABC1s more confident of mainstream mortgage availability
- Figure 58: Ability to obtain new mortgage/remortgage, by lifestage,
special group, working status and household income, July 2007
- Three-quarters of current mortgage borrowers expect to get a
mortgage/remortgage from a mainstream lender
- Figure 59: Ability to obtain new mortgage/remortgage, by household
tenure and region, July 2007
- Implications and opportunities
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