UK Mortgages 2010

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UK Mortgages 2010

Description:    Introduction
                The UK Mortgage Market has been through a lot in the past two years. With the worst of the
                recession now over, funding is starting to return, house prices have stabilised and lenders are
                regaining confidence. However, with austerity measures on the way and a raft of proposed
                regulatory changes, the road to recovery is set to take some time.

                Features and benefits
                - Combines all of the mortgage research conducted in 2010 into one comprehensive document.
                - Provides market sizing data, market shares, key trends, in-depth analysis of the buy-to-let sector,
                mortgage arrears and consumer trends.
                - Includes detailed qualitative opinion and quantitative forecasts of the UK mortgage market for the
                next five years.


                - Total gross lending is predicted to stay fairly flat, reaching £153.7 billion in 2011 , before a more
                rapid recovery begins in 2012.
                - The research confirms that arrears are not, at this stage least, a significant problem. Only 1% of
                mortgage holders questioned said that they had missed more than three payments over the
                previous 12 months. In contrast, 9% said they were overpaying to clear their balance more quickly.
                - Santander was one of the best performers of 2009, as its share of gross lending rose from 14% in
                2008 to 18% in 2009. This further increased to 20% in the first quarter of 2010, compared to 15%
                in Q1 2009. Similarly, HSBC’s share of the market rose more than three-fold, making it the biggest
                improver over this period.

                Your key questions answered
                - What is the overall state of the mortgage market, and how can my business plan ahead for future
                - How are other mortgage competitors faring in this difficult market, what new lenders do we need
                to look out for?
                - When will mortgage funding improve, and how can we manage arrears and reposessions

Contents:       Overview
                A Review of 2009 and Outlook for 2010-11
                The market was in turmoil at the start of 2009, but ended the year in slightly better shape
                Gross lending in the UK mortgage market showed signs of a tentative recovery in Q2 2010
                Activity in the housing market remains close to an historically low level
                Regulatory change and competitive pressures will have an impact on market performance in the
                near future
                Datamonitor expects slow growth in gross lending in 2010 before a more pronounced recovery in
                Competitive Dynamics: Market Overview
                Changes in market share reflect the contrasting fortunes of the leading lenders
                Growth in outstanding balances has come to a virtual halt
                Banks have strengthened their dominance of the mortgage market
                The ability of building societies to lend has been hampered by market conditions
                Specialist lenders have endured a sudden collapse after several years of rapid expansion
                Competitive Dynamics: Lender Developments
                The leading providers all witnessed falls in gross lending in 2009
                Building societies have come under intense pressure over the last 12 months
                Specialist lenders are beginning to re-enter the market
The emergence of new providers could lead to greater competition
Product Developments and Innovation
The availability and cost of mortgages is gradually starting to recover
Mortgage providers are once again starting to innovate
Providers are using mortgages to promote loyalty and cross-sales
Overseas lenders can act as a source of new ideas for UK providers
First-time buyers: improving affordability
Niche segments: catering to neglected consumers
Flexibility: repayment options to suit different types of borrower
Distribution and marketing: forming strategic partnerships
Product design: rewarding loyalty
Technology: exploiting the internet
Buy-to-Let Mortgages and the Rental Sector
The buy-to-let market experienced a significant contraction in 2009
Several factors are responsible for shaping the current market
The buy-to-let market will gradually recover over the next few years
Funding Issues in the Mortgage Market
UK mortgage funding has been severely affected by developments over the last two years
Reduced money-market funding directly led to a collapse in the supply of mortgages
Lenders will have to maintain their reliance on retail deposits for the time being
Mortgage Arrears and Possessions
The climate for arrears and possessions has proved to be more benign than expected
The prospects for arrears and possessions beyond 2010 are uncertain
Several factors have combined to keep arrears and possessions at manageable levels
Research by Datamonitor confirms that arrears are currently an isolated problem
Some lenders have been more affected by arrears than others

A Review of 2009 and Outlook for 2010-11
Competitive Dynamics: Market Overview
Competitive Dynamics: Lender Developments
Product Developments and Innovation
Buy-to-Let Mortgages and the Rental Sector
Supplementary data
Further reading
Ask the analyst
Datamonitor consulting

Figure 1: Gross lending in 2009 was 60% lower than in 2007
Figure 2: Gross lending for purchases bottomed out in 2009, but remortgaging fell sharply
Figure 3: Data from the Bank of England highlight the depth of the fall in remortgaging activity
Figure 4: Mortgage credit availability has improved slightly since the first quarter of 2009
Figure 5: Gross lending by specialist lenders has collapsed over the last two years
Figure 6: The issuance of mortgage-backed debt has virtually dried up over the last two years
Figure 1: Gross lending in Q2 2010 saw a moderate improvement on the level seen in Q2 2009
Figure 2: Monthly lending in 2010 has remained at around the same level as 2009
Figure 3: House purchase has had a larger impact on gross lending in the mortgage market in Q2
Figure 4: Annual house price growth declined during the second quarter of 2010
Figure 5: House price expectations have increased the availability of secured credit in the last few
Figure 6: Conditions in secured credit funding improved in Q2 2010
Figure 7: The percentage of borrowers in arrears is trending downwards
Figure 8: On average two-year fixed deals are the best in the market
Figure 9: Capital and interest mortgages have grown their share of the overall mortgage market
Figure 10: Datamonitor forecasts that gross lending will grow to £253 billion in 2014
Figure 11: Datamonitor's optimistic scenario forecasts gross lending to reach £290 billion in 2014
Figure 12: Datamonitor's pessimistic scenario forecasts gross lending to reach £220 billion in 2014
Figure 3: Santander, RBS and HSBC all claimed markedly larger shares of the market in 2009
Figure 4: LBG and Nationwide have both seen their mortgage books contract in value
Figure 5: Banks were the only type of lender to see outstanding balances rise in 2009
Figure 6: In 2009 building societies experienced a net outflow of retail deposits for the first time
since records began in 1955
Figure 7: Building societies have failed to increase market share
Figure 8: Gross lending by specialists has collapsed since the onset of the banking crisis
Figure 9: LBG saw the biggest fall in gross lending of the top providers in 2009
Figure 10: The total number of buy-to-let products remains low
Figure 11: The number of mortgage products has increased slightly over the last 12 months
Figure 12: High LTV lending has been restricted since mid 2008
Figure 13: The availability of LTV mortgages at above 90% has gradually improved since mid 2009
Figure 14: The cost of two-year fixed rate mortgages is falling
Figure 15: Margins have been gradually shrinking over the last six months
Figure 16: HSBC is marketing a combined fixed and variable rate mortgage
Figure 17: John Charcol offers an alternative to traditional fixed rates
Figure 18: Many of Nationwide’s best deals are only available to its current account holders
Figure 19: Lloyds TSB and Halifax offer preferential mortgage rates to their bank account
Figure 4: Since the mid-1990s the affordability of first-time mortgages has halved
Figure 5: First-time buyer deposits have sharply escalated since the late 1990s
Figure 6: Lloyds TSB is heavily promoting its Lend A Hand mortgage in the press
Figure 7: Standard Chartered in Hong Kong offers several different options for repayment
Figure 8: Westpac New Zealand borrowers can split their mortgage between fixed and variable
Figure 9: Garanti Bank boasts an integrated property portal
Figure 10: Several Australian banks offer packaged bundles of products at preferential rates
Figure 11: Santander offers a fee-free current account exclusively to its mortgage holders
Figure 12: Google has entered the mortgage comparison market
Figure 1: Buy-to-let gross lending fell drastically between 2007 and 2009
Figure 2: The decline in buy-to-let lending activity accelerated in the third quarter of 2008
Figure 3: 75% of mortgage intermediaries experienced a fall in buy-to-let gross advances in 2009
Figure 4: Buy-to-let advertising activity ground to a halt in 2009
Figure 5: The number of buy-to-let products has stagnated since May 2008
Figure 6: Arrears on buy-to-let mortgages have generally been lower than for the market as a
Figure 7: Repossession rates on buy-to-let mortgages have matched those for all mortgages
Figure 8: Buy-to-let lending is unlikely to rise or fall sharply in the foreseeable future, according to
Figure 9: More letting offices reported seeing landlords buy property than sell in 2009
Figure 10: The proportion of letting offices reporting more tenants than properties recovered in
Figure 11: Only around one in 10 letting offices saw an increase in achievable rents in 2009
Figure 12: Fewer letting offices saw an increase in rental supply due to an inability to sell properties
in 2009
Figure 13: In Datamonitor’s view, buy-to-let gross advances will rise to £25.6 billion by 2014
Figure 14: Buy-to-let gross advances will reach £35 billion in 2014 under the optimistic forecast
Figure 15: The pessimistic forecast sees buy-to-let gross advances reaching £11.5 billion in 2014
Figure 1: RMBS public issuance fell away sharply in late 2007, and remains at negligible levels
Figure 2: Retained RMBS issues have almost completely replaced public issues
Figure 3: Throughout 2008, lenders stated that wholesale conditions were driving reduced credit
Figure 4: Quarterly changes in mortgage credit availability
Figure 5: The number of available mortgage products fell steeply in late 2007 and 2008
Figure 6: There was a sharp fall in the maximum LTVs available in 2008
Figure 7: The number of available 90%-plus LTV mortgage products collapsed in early 2009
Figure 8: Lending criteria tightened and loan approval rates fell drastically during the credit crunch
Figure 9: Spreads on mortgages rose significantly from late 2007 through to mid-2009
Figure 10: Spreads on variable rate mortgages ballooned in 2009
Figure 11: Gross lending by specialist lenders collapsed in 2008
Figure 12: Self-certification mortgages have been completely unavailable since November 2009
Figure 13: Banks’ share of gross lending has significant increased during the funding crisis
Figure 14: Building society retail deposits fell in 2009 for the first time since records began in 1955
Figure 15: New issues of mortgage covered bonds in UK grew threefold between 2007 and 2008
Figure 16: Growth in retail deposits has slowed down since the base rate fell to a record low
Figure 17: The funding gap between customer loans and deposits rose to 30% by 2007
Figure 1: The number of possessions in 2009 came in considerably below expectations
Figure 2: Arrears also ended the year below forecasts
Figure 3: Arrears and possessions have risen significantly since the start of the downturn
Figure 4: Arrears are rising faster based on months outstanding rather than as a proportion of total
Figure 5: Arrears peaked in the second quarter of 2009 before gradually falling
Figure 6: The number of possessions on mortgaged properties fell over the course of 2009
Figure 7: There has only been a fall in mortgages that are less than 5% in arrears
Figure 8: Loss of income is by far the biggest factor driving arrears
Figure 9: Following 12 months of improvement, lenders are expecting defaults and losses to start
Figure 10: The number of mortgages in arrears will reach 239,100 in 2014 in Datamonitor’s view
Figure 11: The non-standard population will peak in 2012
Figure 12: The sub-prime population will rise up to 2013 before starting to fall
Figure 13: Possession actions on mortgaged properties fell sharply in late 2008
Figure 14: Formal arrangements to repay arrears rose rapidly throughout 2008
Figure 15: Possessions are considerably below the levels experienced during the 1990s
Figure 16: The MRS has provided help for a limited number of households
Figure 17: Over half of borrowers in arrears contacted their lender before or as soon as they got
into difficulty
Figure 18: Only a small proportion of borrowers are in significant arrears at present
Figure 19: The likelihood of arrears rises in line with the lack of affordability
Figure 20: All social classes have proved equally susceptible to missed payments
Figure 21: Summary of lenders’ mortgage books in 2009
Figure 22: The arrears rates of the major providers are either in line with or below the market
Figure 23: Barclays and Nationwide enjoy the lowest LTVs on their mortgage books
Figure 24: LBG has had to make the largest provision for impairments
Figure 25: Nationwide’s Mortgage Charter outlines the help that it will provide to homeowners in

Table 1: Forecast gross lending under the Datamonitor scenario
Table 2: Forecast gross lending under the optimistic scenario, 2010f–14f
Table 3: Forecast gross lending under the pessimistic scenario, 2010f–14f
Table 4: The number of building societies in the UK continues to decline
Table 5: Variable rates offered by main buy-to-let lenders, June 2009 to March 2010
Table 6: Maximum LTVs offered by main buy-to-let lenders, June 2009 to March 2010
Table 7: Fees charged by main buy-to-let lenders, June 2009 to March 2010
Table 8: Minimum advances offered by main buy-to-let lenders, June 2009 to March 2010
Table 9: Maximum advances offered by main buy-to-let lenders, June 2009 to March 2010
Table 10: Maximum portfolios allowed by main buy-to-let lenders, June 2009 to March 2010
Table 11: Eligibility of first-time buyers by main buy-to-let lenders, June 2009 to March 2010
Table 12: Buy-to-let lenders listed by Moneyfacts, March 2010
Table 13: Forecast buy-to-let gross advances under the Datamonitor view, 2010–14
Table 14: Forecast buy-to-let gross advances under the optimistic view, 2010–14
Table 15: Forecast buy-to-let gross advances under the pessimistic view, 2010–14
Table 16: Forecasts for the number of mortgages more than three months in arrears, 2010–14
Table 17: UK gross annual lending (£m), 2003–09
Table 18: Gross mortgage lending by product line, 2004–09
Table 19: Net balance of lenders reporting increase in demand for remortgage credit
Table 20: Net balance of lenders reporting improvements in credit availability and credit scoring
Table 21: Index of gross lending by specialist lenders and MFIs (Jan 1994 = 100)
Table 22: Public issuances of residential mortgage-backed securities (£ billion)
Table 23: Monthly and annual changes in house prices, January 2007–January 2010
Table 24: Net balance of lenders reporting that an increase in house prices is boosting credit
Table 25: Interest rates on fixed-rate mortgages
Table 26: Net balance of lenders reporting an increase in mortgage availability
Table 27: Net balance of lenders reporting an increase in maximum LTVs
Table 28: Average size of deposits paid by first-time buyers, January 2007–December 2009
Table 29: Comparison of interest rates, 2007–10
Table 30: Arrears and repossessions, 2004–09
Table 31: Share of total gross lending, 2008–09
Table 32: Total number of mortgage products, February 2007–July 2010
Table 33: Outstanding mortgage balances (£bn), by provider, 2008–09
Table 34: Outstanding balances (£bn) by type of provider, 2000–09
Table 35: Net change in building society retail deposits (£m), 1955–2009
Table 36: Share of gross lending by type of lender, 2000–09
Table 37: Index of gross lending by specialist lenders and MFIs (January 1994 = 100)
Table 38: Gross mortgage lending (£bn), 2008–09
Table 39: Total number of buy-to-let mortgage products, March 2007–July 2010
Table 40: Distribution of LTVs on gross lending (percentage of new lending by value)
Table 41: Total number of LTV mortgages at above 90%, August 2008–July 2010
Table 42: Average quoted rate on two-year fixed rate mortgages (%), February 2007–June 2010
Table 43: Distribution of margins above base rate on gross lending
Table 44: Percentage of dwellings in the UK that are owner occupied
Table 45: Owner occupation rates across Europe in 2008
Table 46: UK gross annual lending (£m)
Table 47: UK first-time buyer affordability index
Table 48: Size of median deposit paid by first-time buyers (£)
Table 49: Annual buy-to-let gross advances, 1999–2009
Table 50: Quarterly buy-to-let gross advances, 2006 Q3 to 2009 Q4
Table 51: Changes in gross advances handled by intermediaries between 2008 and 2009 (%)
Table 52: Percentage of mortgages more than three months in arrears (%)
Table 53: Percentage of mortgages taken into possession (%)
Table 54: Sales prospects for mortgages over next two years
Table 55: Proportion of landlords who are buying and selling properties (%)
Table 56: Proportion of letting offices reporting more tenants than properties (%)
Table 57: Proportion of letting offices reporting an increase in rental supply due to an inability to
sell properties (%)
Table 58: Proportion of letting offices reporting that achievable rent levels have increased (%)
Table 59: Advertising spend on buy-to-let mortgages, 2007–08
Table 60: Total number of available buy-to-let products
Table 61: Forecasts for the number of possessions in 2009 versus actual
Table 62: Forecasts for the number of mortgages at least 2.5% in arrears in 2009 versus actual
Table 63: Annual arrears and possessions
Table 64: Comparison of arrears by number of months outstanding and by percentage of
outstanding balance
Table 65: Mortgages more than 2.5% in arrears
Table 66: Properties taken into possession
Table 67: Mortgages in arrears (%), by balance in arrears
Table 68: Factors causing mortgage arrears
Table 69: Net balance of lenders reporting increases on default rate and losses on secured loans
Table 70: Size of non-standard population, 2009–14
Table 71: Size of sub-prime population, 2009–14
Table 72: Possession actions on mortgaged properties
Table 73: Number of formal arrangements and temporary concessions
Table 74: Comparison of number of possessions between current downturn and previous downturn
Table 75: Applications under Mortgage Rescue Scheme
Table 76: Stage at which borrowers in difficulty contacted their lender
Table 77: Repayment history over the last year (%), by size of mortgage
Table 78: Borrowers who have missed at least one payment in the last 12 months (%), by
Table 79: Borrowers who have missed at least one payment in the last 12 months (%), by
socioeconomic group
Table 80: Mortgages more than three months in arrears at the end of 2009 (%)
Table 81: Average LTVs on new and existing mortgages in 2009 (%)
Table 82: Impairment allowances in 2009
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