Mortgages - UK - March 2010

ISSUES IN THE MARKET
Key Issues
Market definitions
Abbreviations
FUTURE OPPORTUNITIES
Mortgage ownership is declining, reflecting the fall in first-time buyers
Housing market is likely to remain subdued in 2010, but there could be a strong pick-up in remortgage activity
Uncertainty reigns
Out with the old and in with the new
MARKET IN BRIEF
A large target market
Recent performance: New business down sharply
Short-term outlook: Market faces a slow and steady recovery
Trading environment and recent developments
Market contraction has led to a loss of competition
Leading lenders
Intermediaries lose distribution share
Adspend continues to decline
TGI research: Mortgage ownership falls
Mintel’s consumer research: Key findings
The typical mortgage borrower
Recent payment experience and views on switching
Attitudes towards mortgage advice, online channels and product fees
Targeting opportunities
INTERNAL MARKET ENVIRONMENT
Key points
Boom years come to an end
Credit crunch claims many casualties
Government intervention to improve liquidity…
…but fears heighten over future funding
Bank of England halts quantitative easing programme
Fall in LIBOR boosts lenders’ profit margins
Figure 1: Bank of England base rate, three-month (monthly average) LIBOR and new mortgages effective rate, January 2004-December 2009
Insight and implication
Approvals for house purchase rose by a fifth in 2009
Figure 2: Number of monthly mortgage approvals (seasonally adjusted), by type, December 2007-December 2009
Affordability remains a major hurdle for FTBs
Figure 3: Mortgage payment as a proportion of income and deposit as a proportion of price, by type of borrower, 1990-2009
Repossessions hit 14-year high, but below initial expectations
Homeowners Mortgage Support
BROADER MARKET ENVIRONMENT
Key points
Economic backdrop: indicators suggest a mixed picture for the mortgage market
Question mark over maintaining the bank base rate at its current level
Improved consumer sentiment could raise demand for mortgages…
Figure 4: GfK Consumer Confidence Barometer – UK, January 1988-January 2010
…but funding issues mean that demand could be stifled by a lack of supply
More moderate income and spending growth going forward
Figure 5: Total PDI, consumer expenditure and savings ratio, at current prices, 2004-13
Decline in expected borrowing activity
Figure 6: Savings, investment, borrowing and debt repayment – consumers’ expected activity, quarterly indices, June 2002-December 2009
Mortgage and house-buying intentions slip further…
Figure 7: Expected mortgage and property purchase activity, quarterly indices, Q3/Q4 2002-Q3/Q4 2009
…although housing transactions have picked up recently…
Figure 8: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q4 2005-Q4 2009
…and, since mid-2009, property prices have also risen
Figure 9: Annual change in UK house prices – comparison of four sources, Q1 2004-Q4 2009
Debt-to-income ratio stabilises in 2009
Figure 10: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2000-09
Mortgage debt write-offs rise
Figure 11: Quarterly write-offs of lending to individuals, by sector, Q2 2004-Q4 2009
REGULATION ROUND-UP
Key points
Current regulatory system needs updating
Mortgage Market Review
New measures to protect customers in arrears
Buy-to-let and second-charge mortgages to come under FSA remit
Self-cert under threat
LTV and LTI caps still up for debate
TRADE PERSPECTIVE
About the respondents
Post-crunch, big players with access to diverse funding sources will have the competitive edge
Lenders starting to raise LTVs and are bundling products to grow customer relationships
MMR reaction: Some measures are deemed unnecessary
‘Approved persons’ regime: An extra cost burden
Distinction between fast-track and self-cert needs to be clarified
Still a fragile market, but the worst is behind us
Final thoughts
COMPETITIVE CONTEXT
Key points
Over two thirds of UK dwellings are owner-occupied
Figure 12: UK housing stock, by tenure, 1991-2009
UK mortgage market transformed in the decade leading up to the credit crisis
All change
Crisis impact
Specialist lenders’ share of outstanding mortgages slips back to 25%
Figure 13: Total mortgage balances outstanding (not seasonally adjusted), by type of lender, Q4 1993-Q4 2009
Changing competitive environment
Asset disposals set to bring fresh blood into the retail banking and lending markets
SWOT ANALYSIS
Figure 14: The UK mortgage market – SWOT analysis, 2010
WHO’S INNOVATING?
Key points
Product availability improves, but there’s little in the way of innovation
Lenders slowly returning to the first-time buyer market
Some competition starts to seep into the market
New product development in the specialist sector focuses on affordability
MARKET SIZE AND FORECAST
Key points
Gross new lending declined by 44% in 2009
Figure 15: Total mortgage lending, by gross and net advances (not seasonally adjusted), 2001-09
Contributory factors
Redemptions have fallen over the past two years
Figure 16: Monthly mortgage repayments, by type (seasonally adjusted), January 2006-November 2009
An uncertain future for the mortgage market
Figure 17: Total mortgage lending, by gross and net advances, 2010-14
Factors incorporated
Summary of key future trends
MARKET SEGMENTATION
Key points
Most specialist lenders have fallen by the wayside
Figure 18: Gross mortgage lending, by type of lender (not seasonally adjusted), 2004-09
Lack of competition has led to a sharp reduction in remortgage activity
Figure 19: Gross mortgage lending, by type of loan, 2004-09
First-time buyer loans edge up slightly in 2009
Figure 20: Loans advanced for house purchase, by type of borrower, 2004-09
Mortgage PSD trends
LENDER RANKINGS
Key points
Key financials for the top six lenders in 2009
Figure 21: Top six mortgage lenders, by gross advances, 2009
Crisis consolidates the market
Figure 22: Lenders’ share of the mortgage market, by amounts outstanding, 2007 and 2008
Lloyds’ acquisition of HBOS creates mortgage giant
Figure 23: Lenders’ share of the mortgage market, by gross advances, 2007 and 2008
More exits, more change
Outlook for 2010
 MARKET EXITS PAVE THE WAY FOR NEW ENTRANTS
New brands, fresh approach
Home and Savings Bank
Metro Bank
Post Office
Tesco Bank
Virgin Money
Walton & Co
COMPANIES AND PRODUCTS
Barclays/Woolwich
Co-operative Financial Services/Britannia
HSBC
Lloyds Banking Group
Nationwide Building Society
Northern Rock
RBS/NatWest
Grupo Santander
BRAND COMMUNICATION AND PROMOTION
Key points
Mortgage adspend falls again
Figure 24: Total advertising expenditure on mortage products and services, 2005-09
Equity release attracted the greatest proportion of industry adspend in 2009
Figure 25: Advertising expenditure on mortgage products and services, by sub-product category, 2005-09
Halifax was the leading advertiser of mortgages in 2009
Figure 26: Advertising expenditure on mortgage products and services (excluding equity release), by top 20 advertisers, 2007-09
Press and TV accounts for most mortgage advertising
Figure 27: Proportional distribution of mortgage adspend (excluding equity release), by media type, 2007-09
BRAND ELEMENTS
Key points
Brand map
Figure 28: Attitudes towards and usage of mortgage brands, February 2010
Brand qualities of mortgage brands
Stability most sought after
Figure 29: Personalities of various mortgage brands, February 2010
Experience of mortgage brands
Halifax still leading, but losing share
Figure 30: Consumer usage of various mortgage brands, February 2010
Brand consideration for mortgage brands
Northern Rock has lost its appeal
Figure 31: Consideration of various mortgage brands, February 2010
Brand satisfaction for mortgage brands
Nationwide and Santander are the best performers
Figure 32: Satisfaction with various mortgage brands, February 2010
Brand commitment to mortgage brands
Lloyds TSB has greatest loyalty
Figure 33: Commitment to various mortgage brands, February 2010
Brand intentions for mortgage brands
HSBC, Nationwide and Santander have best future usage potential
Figure 34: Future usage intentions for various mortgage brands, February 2010
Brand recommendation for mortgage brands
Anything but a British bank
Figure 35: Recommendation of various mortgage brands, February 2010
Halifax
What the consumer thinks
Figure 36: Attitudes towards the Halifax brand, February 2010
The Co-operative Bank
What the consumer thinks
Figure 37: Attitudes towards The Co-operative Bank brand, February 2010
Santander
What the consumer thinks
Figure 38: Attitudes towards the Santander brand, February 2010
Northern Rock
What the consumer thinks
Figure 39: Attitudes towards the Northern Rock brand, February 2010
Nationwide
What the consumer thinks
Figure 40: Attitudes towards the Nationwide brand, February 2010
CHANNELS TO MARKET
Key points
Intermediary share declined in 2008/09…
Figure 41: Proportional distribution of regulated mortgage sales, by channel, 2006/07-2008/09
…forcing many to exit the market
Figure 42: Number of mortgage ARs and DA intermediary firms, by type, 2006-09
THE CONSUMER – MORTGAGE OWNERSHIP TRENDS
Key points
Mortgage penetration has declined steadily over the past seven years
Figure 43: Trends in mortgage ownership, 2003-09
Four in five mortgages are jointly held
Figure 44: Mortgage held solely or jointly with another person, 2009
Over 50% of mortgage borrowers have had their mortgage for more than five years
Figure 45: How long ago mortgage was first taken out, 2005-09
First-time borrowers account for two fifths of the market
Figure 46: Proportion of first-time mortgage borrowers, 2009
More than half of all borrowers have a repayment-only mortgage
Figure 47: Type of mortgage held, 2006-09
Medium-term fixed-rate mortgages are still the most popular type
Figure 48: Type of interest rate on mortgage, 2006-09
The proportion of borrowers remortgaging has declined year on year since 2005
Figure 49: Proportion of mortgage borrowers who have remortgaged in the past year, 2005-09
Over two thirds have increased their mortgage debt at some point
Figure 50: Proportion of mortgage borrowers who have ever increased their mortgage debt, 2009
THE CONSUMER – PROPERTY OWNERSHIP AND ASPIRATIONS
Key points
About Mintel’s consumer survey
Proportion of people saving up for first home has declined since 2006
Figure 51: Property and mortgage ownership, 2006-09
Over half of those aged 35-54 have a mortgage
Figure 52: Property and mortgage ownership, by age, December 2009
Women are more likely to be outright owners than men
Figure 53: Property and mortgage ownership, by gender and socio-economic group, December 2009
Personal wealth determines home ownership
Figure 54: Property and mortgage ownership, by household income, December 2009
Identifying the core target groups
Figure 55: Target groups identified for the UK mortgage market, December 2009
THE CONSUMER – EXPECTED HOUSE PRICE MOVEMENT
Key points
Most UK adults do not anticipate further house price falls in 2010
Figure 56: Expected house price movement over the next year, December 2009
FTB prospects are less confident than existing homeowners
Figure 57: Expected house price movement over the next year, by tenure groups, December 2009
Expectations are influenced by personal experience and aspirations
Figure 58: Expected house price movement over the next year, by age, December 2009
THE CONSUMER – RECENT ACTIVITY AND FUTURE PLANS
Key points
A third of mortgage borrowers are better off than a year ago
Figure 59: Agreement with statements about owning property, recent activity and future plans, by tenure groups, December 2009
Housing and mortgage markets are set to remain subdued in 2010
The affluent reap the rewards, while the less-well off struggle
Figure 60: Agreement with statements about owning property, recent activity and future plans, by gender and socio-economic group, December 2009
Young borrowers are most fearful of being in negative equity
Figure 61: Agreement with statements about owning property, recent activity and future plans, by age, December 2009
THE CONSUMER – BUYING BEHAVIOUR
Key points
A fifth of mortgage borrowers and FTB prospects are happy to arrange a mortgage without advice
Figure 62: Agreement with statements about arranging/choosing a mortgage, by tenure groups, December 2009
High product fees deter a fifth of mortgage borrowers
Presence of a branch is not a concern for most mortgage borrowers and FTB prospects
Tesco Bank could gain a respectable share of the mortgage market
One in four people who are planning to get a new mortgage or remortgage are happy to eschew expert advice
Figure 63: Agreement with statements about arranging/choosing a mortgage, December 2009
Attitudes vary among the main demographic sub-groups
Figure 64: Agreement with statements about arranging/choosing a mortgage, by gender and socio-economic group, December 2009
Figure 65: Agreement with statements about arranging/choosing a mortgage, by age, December 2009
Further analysis
APPENDIX 1 – PROPERTY AND MORTGAGE OWNERSHIP BY DEMOGRAPHICS
Figure 66: Property and mortgage ownership, by demographics, December 2009
APPENDIX 2 – PROFILE OF MORTGAGE BORROWERS & FTB PROSPECTS
Figure 67: Profile of mortgage borrowers and FTB prospects versus the total sample, by demographics, December 2009