Mortgage Innovations: New Ideas for UK Lenders

Table of Contents

• CATALYST
• SUMMARY
• METHODOLOGY
• ANALYSIS
  • In a mature market, innovation is key to differentiation and a successful business
    • There is an ongoing need for innovation given the high degree of competition in the UK mortgage market
    • Innovation can come in a variety of forms
  • While innovations in the UK have been few and far between over the last year, there are a number worthwhile mentioning
    • Product design: Kent Reliance' s intergenerational mortgage created a slew of debate
    • There has been significant criticism of the mortgage by the industry
    • Yet such a mortgage is really a matter of perception
    • Product design and structure: shared equity mortgages are a new product to the UK market and one with substantial potential
    • But at present they are hindered by a number of weaknesses
    • Repayment options: Premier Cru' s Fine Wine Investment Mortgage is a creative but highly niche product
    • Repayment options: amid criticisms, lenders continue to lengthen mortgage terms
    • Customer acquisition and loyalty: Yorkshire Building Society attaches credit cashback rewards to its mortgage
    • Customer acquisition: some lenders now offer conveyancing services to give the customer added convenience
    • Product structure: the current economic climate has given rise to intermediaries offering new and unique remortgaging services for consumers going bankrupt
    • Distribution: Mortgagebundles.com: the appearance and disappearance of an online mortgage auction site
  • Yet there have been a number of important innovations abroad over 2005-6, some of which could be used by UK lenders
    • Customer acquisition and loyalty: Canadian Imperial Bank of Commerce (CIBC) builds up loyalty by tying its mortgage to the well-known Aeroplan scheme
    • Expanding the provision of loyalty schemes is a real possibility for UK lenders
    • Product design: first time buyers in Canada and New Zealand - funding their deposit by ' borrowing' from their pension funds
      • Canada' s scheme is based on a loan whereas first time buyers in New Zealand do not have to pay the deposit back
    • While an interesting idea, such a mortgage is not likely to become a reality in the UK
    • Distribution: a number of French lenders offer a range of mortgage-related products ' in a pack'
      • For example, Caisse d' Epargne offers a ' pack immobilier'
    • UK lenders could quite easily create their own version of a ' pack'
    • Customer acquisition and loyalty: BBVA is tapping into the first time buyer market through a current and savings account
    • UK lenders could be well-rewarded by creating a loyalty-based "youth brand"
    • Product design: 50 year mortgages are now available in Spain and Portugal
    • If UK lenders can negotiate their way around potential negative criticism, lenders will be able to introduce 50 year mortgages
    • Marketing and cross-selling: UBS Switzerland' s family mortgage links with its pension fund
    • This type of innovation already occurs in the UK, but has potential for further development
  • But ultimately, innovation is only worthwhile if it adds value to potential customers
    • Innovative products or characteristics must add value to a lender' s proposition
    • There are a number of success ingredients that lenders should take into consideration when looking at implementing innovation
• APPENDIX
  • Definitions
    • Interest-only mortgage
    • Open Market Homebuy scheme
  • Further reading
    • European mortgage reports
    • UK mortgage reports
    • UK mortgage briefings
    • Forthcoming mortgage briefings
    • UK Mortgage Market Map 2006
      • Key Features
      • For further information
  • Relevant links
  • Ask the analyst
  • List of Tables
    • Table 1: Total discount on a £130,000 mortgage over three years, September 2006
  • List of Figures
    • Figure 1: Caisse d' Epargne states that it offers the most complete ' pack immobilier' on the market, November 2006
    • Figure 2: The UK Mortgage Market Map 2006 covers a wide range of mortgage sectors
    • Figure 3: Taxonomy of UK Mortgage Market Map 2006
    • Figure 4: Datamonitor' s core consulting capabilities