Pricing Models in the UK Mortgage Market: Time for Change?

Table of Contents

• CATALYST
• SUMMARY
• METHODOLOGY
• ANALYSIS
  • Pricing has continued to become more competitive
    • Net margins on lenders' mortgage books has continued to decrease
  • The majority of lenders continue to use short-term pricing to acquire customers
    • Such a strategy has led to low margins
    • To recoup the cost of low headline rates, lenders have continued to raise arrangement and exit fees
      • However, the FSA has clamped down on rising mortgage exit fees
    • APRs have also attracted criticism
      • Critics argue that APRs are misleading, inconsistent and no longer relevant for the UK mortgagee
      • In fact, there have been suggestions for a replacement of the APR
      • But APRs are likely to remain a part of the UK mortgage scene for some time to come
  • However, changes to longer-term pricing strategies reflect an increasing focus on retention on the part of lenders
    • A significant number of lenders are moving away from SVRs
    • Tracker products in particular are gaining interest and momentum
      • Tracker products are being used as a retention tool
      • Lifetime trackers in particular gained popularity in 2006
    • An increasing number of lenders are offering long-term fixed rate mortgages
      • Early and mid 2006 saw particular interest in such mortgages
      • A number of lenders began offering long-term fixed rate deals
    • Lenders offering the same rates to both new and existing customers are becoming more common
      • Formerly, many lenders refused to offer the same rates to all customers
      • However, Nationwide has somewhat changed its tune
      • But an increasing number of lenders are moving towards this model
    • Rewarding long-standing customers with discounts could be another way to improve retention
    • Lenders are turning their focus on intermediary retention, with some offering procuration fees for remortgages
      • Halifax' s new retention strategy is likely to change the market
  • Yet, lenders will never completely move away from short-term pricing unless the customer demands it
    • There has been talk of SVRs disappearing
    • Intermediaries have a role to play
    • Ultimately, changes in the market depend on customer demand
      • Yet, lenders could have a greater role in changing the market
• APPENDIX
  • Definitions
    • Bank of England base rate
    • Capped mortgage
    • Fixed rate mortgage
    • Flexible mortgage
    • Tracker mortgage
    • Variable mortgage
  • 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: Mortgage fees have increased substantially over the last five years, March 2001-March 2006
    • Table 2: In the short-term, ultimately, discounted variable rate mortgages are cheaper than lifetime tracker mortgages, September 2006
  • List of Figures
    • Figure 1: The UK Mortgage Market Map 2006 covers a wide range of mortgage sectors
    • Figure 2: Taxonomy of UK Mortgage Market Map 2006
    • Figure 3: Datamonitor' s core consulting capabilities