House prices have been in decline since around Q3 2007, having fallen by 16% in 2008 according to both the Halifax and Nationwide price indices. This has had major implications on the mortgage market, compounded by the fact that owing to massive losses from US sub-prime investments and bad debts in the UK, banks have little cash to lend. As a result, gross mortgage lending fell by 29% in 2008 as lenders tightened lending criteria by lowering LTVs and income multiples, with the best rates now reserved for homeowners with a 40% equity share in their property.

While quantitative easing, the Treasury’s Asset Protection Scheme and commitments from several major providers to increase lending during 2009 may help, the year is set to be another challenging one for mortgage providers.

This report explores the issues that have plagued the mortgage market in detail and looks at the strengths and weaknesses that exist here. The state of the market in terms of its size, growth and individual segment performance is assessed, as well as the performance of key players within the market and the strategies that they are utilising in such challenging conditions. The shift in distribution channels from intermediated to direct sales is then explored, before concluding with an analysis of the consumer’s perspective on the market.

Key issues

Liquidity issues – lack of credit availability

Tighter lending criteria – lower LTVs and income multiples

Falling house prices deter potential buyers from entering the market

Intermediaries are suffering as lenders focus more on direct channels

Fewer loans for house purchase, especially for first-time buyers

Remortgage business has also been hit, with more people simply reverting to SVR

The low base rate has increased demand for trackers (forcing lenders to tighten up)

It has also squeezed margins for lenders, impacting profitability.