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MP65023

MAPS DIRECT MORTGAGES : OCTOBER 2003

Overview

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This report covers: UK, mortgage market, repayment mortgages, Endowment mortgages, ISA mortgages, Fixed-Rate mortgages, capped mortgages, flexible mortgages, All-in-one accounts, current account mortgages, offset mortgages, mortgage indemnity guarantees, sub-prime mortgages,

Companies covered include: HBOS, Abbey National, Barclays, Lloyds TSB, Nationwide Building Society, Northern Rock, EGG,

Table of Contents
Executive Summary
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TABLE OF CONTENTS

Executive Summary

1. Introduction

DEFINITION

2. Strategic Overview

MARKET DYNAMICS AND SEGMENTATION

Current Status of the Market and Consumer Trends

Table 1: Proportion of Mortgage Stock Arranged Directly or Indirectly ( percent), 1996-2003

Strategic Position

Total Industry Value and Growth

Table 2: The UK Mortgage Market by Gross Lending (£m), Second Quarter 2000-First Quarter 2003

Figure 1: The UK Mortgage Market by Gross Lending (£m), Second Quarter 2000-First Quarter 2003

Table 3: The UK Mortgage Market by Balances Outstanding and Approvals (£m and percent), 1997-2002

Figure 2: The UK Mortgage Market by Balances Outstanding (£m), 1997-2002

Market Segmentation

Table 4: Mortgage Lending by Repayment Method by Type of Advance ( percent of loans), First Quarter 2003

Figure 3: Mortgage Lending by Repayment Method by All Types of Advance ( percent of loans), First Quarter 2003

Channel Mix

Table 5: Estimated percentage of Lenders by Number of Distribution Channels (number and percent), 2003

Competitive Structure

Table 6: Top 20 Mortgage Lenders by Rank by Gross Mortgage Lending and Market Share (£bn and percent), 2002

Advertising

Table 7: Main Media Advertising Expenditure on All Mortgages by Company (£000 and percent), Years Ending June 2002 and 2003

THE CONSUMER

Unemployment and Earnings

Table 8: UK Claimant Unemployment and Average Earnings Growth Rate ( percent), 1998-2003

Prices, Interest Rates and Savings

Table 9: Retail Price Index (1987=100 and percent), 1998-2002

Table 10: UK Base Rate, Savings Ratio, Equity Price Index and House Price Index ( percent), Fourth Quarter 1999-2003

Demographics

Table 11: Number of Households in England (000), 2001, 2006, 2011 and 2016

UK MORTAGE MARKET

Table 12: Property Transactions for England, Wales and Northern Ireland (000 and percent), 1998/1999-2002/2003

Figure 4: Property Transactions for England, Wales and Northern Ireland (000), 1998/1999-2002/2003

3. Types of Mortgage

REPAYMENT MORTGAGES

Overpayments

Discounted Mortgages

The Promotion of Discounted Mortgages

Table 13: Main Media Advertising Expenditure on Discount Rate Mortgages by Company (£000 and percent), Years Ending June 2002 and 2003

ENDOWMENT MORTGAGES

ISA MORTGAGES

FIXED-RATE MORTGAGES

Table 14: UK Base Rates ( percent), 1990-2002 and August 2003

Figure 5: UK Base Rates ( percent), 1990-2002 and August 2003

CAPPED MORTGAGES

FLEXIBLE MORTGAGES

The Promotion of Flexible Mortgages

Table 15: Main Media Advertising Expenditure on Flexible Mortgages by Company (£000 and percent), Years Ending June 2002 and 2003

ALL-IN-ONE ACCOUNTS

CURRENT ACCOUNT MORTGAGES

OFFSET MORTGAGES

MORTGAGE INDEMNITY GUARANTEES

SUB-PRIME MORTGAGES

4. Regulation

THE MORTGAGE CODE

NEW REGULATION AND THE FINANCIAL SERVICES AUTHORITY

Regulation Draft

Response by The Council of Mortgage Lenders

What the New Regulation Will Mean for the Lender

5. Branch Sales

MARKET SHARES

Table 16: percentage of Mortgages Arranged Through Branches, 1996-2002

Figure 6: percentage of Mortgages Arranged Through Branches, 1996-2002

DISTRIBUTION

Table 17: UK Bank Branch Networks (number of branches and percent), 1998-2001

6. Telephone Sales

MARKET SHARES

Table 18: percentage of Loans Arranged Over the Telephone, 1997-2003

DISTRIBUTION

Table 19: Number of Telephone-Accessible Accounts Held at UK Clearing Banks (number and percent), 1996-2002

Figure 7: percentage of Telephone-Accessible Accounts Held at UK Clearing Banks, 1996-2002

7. Internet Sales

MARKET SHARES

Table 20: percentage of Loans Arranged Through the Internet, 1997-2003

ADVERTISING

Table 21: Main Media Advertising Expenditure on Online Mortgages (£000), Years Ending 2002 and 2003

DISTRIBUTION

Table 22: Number of Computer-Accessible Accounts Held at UK Clearing Banks (number and percent), 1996-2002

Figure 8: percentage of Computer-Accessible Accounts Held at UK Clearing Banks, 1996-2002

Internet Intermediaries

8. An International Perspective

THE US MORTGAGE MARKET

THE EU MORTGAGE MARKET

9. PEST Analysis

POLITICAL FACTORS

Property-Owning Democracy

Regulations

ECONOMIC FACTORS

Forced Savings

Labour Market Effects

Capital Market Effects

Land Market Effects

Sub-Prime Lending

SOCIAL FACTORS

Family Life

Social Exclusion

TECHNOLOGICAL FACTORS

Credit Rating

Security

Efficiency

10. Consumer Dynamics

OVERVIEW

Table 23: Summary of Attitudes Towards Mortgages ( percent of respondents), 2003

Summary of Results

I Have Considered Buying Somewhere to Live With a Mortgage

I Would Ask a Solicitor or an Accountant for Advice Before Signing a Mortgage Agreement

Table 24: Buying Somewhere to Live With a Mortgage/ Asking a Solicitor or Accountant for Advice ( percent of respondents), 2003

I Would Ask a Bank or Building Society for Advice Before Signing a Mortgage Agreement

I Would Ask an Independent Financial Adviser (IFA) for Advice Before Signing a Mortgage Agreement

Table 25: Asking for Advice From a Bank or Building Society/IFA ( percent of respondents), 2003

I Would Always Shop Around the High Street for the Best Terms and Conditions for a Mortgage

I Would Look on the Web for the Best Mortgage Available and Then Go to a Bank or Building Society

Table 26: Shopping Around the High Street/ Looking on the Web ( percent of respondents), 2003

I Would Apply for a Mortgage Online and I Would be Happy to Sign an Agreement on the Internet

Table 27: Applying for a Mortgage Online/Signing a Mortgage Agreement on the Internet ( percent of respondents), 2003

I Would Rather Choose an Independent Mortgage Company Than a Bank or Building Society

I Would be Happy to Negotiate a Mortgage Over the Telephone

Table 28: Choosing an Independent Mortgage Company/ Negotiating Over the Telephone ( percent of respondents), 2003

The Ease of Being Able to Contact a Mortgage Provider Would Influence Whom I Choose for My Mortgage

The Friendliness of a Mortgage Provider's Staff Would Influence Whom I Choose for My Mortgage

Table 29: Contacting a Mortgage Provider/Friendliness of Mortgage Provider's Staff ( percent of respondents), 2003

The Change in House Prices/Interest Rates Would Influence My Decision Regarding When to Get a Mortgage

Table 30: The Influence of Changes in House Prices/Interest Rates ( percent of respondents), 2003

The State of the National Economy Would Affect my Decision Regarding When to Get a Mortgage

None of These

Do Not Know

Table 31: The Influence of the State of the National Economy/None of These ( percent of respondents), 2003

Table 32: Do Not Know ( percent of respondents), 2003

11. Company Profiles

INTRODUCTION

HBOS PLC

Corporate Strategy

Strengths and Weaknesses

New Product Development

Innovations

Advertising

Distribution

Profitability

Table 33: Financial Results for HBOS PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

ABBEY NATIONAL PLC

Corporate Strategy

Strengths and Weaknesses

New Product Development

Brand Development

Innovations

Advertising

Distribution

Profitability

Table 34: Financial Results for Abbey National PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

BARCLAYS PLC

Corporate Strategy

Strengths and Weaknesses

New Product Development

Advertising

Distribution

Profitability

Table 35: Financial Results for Barclays PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

LLOYDS TSB PLC

Corporate Strategy

Strengths and Weaknesses

New Product Development

Advertising

Distribution

Profitability

Table 36: Financial Results for Lloyds TSB PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

NATIONWIDE BUILDING SOCIETY

Corporate Strategy

Strengths and Weaknesses

New Product Development

Innovations

Advertising

Distribution

Profitability

Table 37: Financial Results for Nationwide Building Society (£m), Years Ending 4th April 2001-2003

Future Company Developments

NORTHERN ROCK PLC

Corporate Strategy

Strengths and Weaknesses

New Product Development

Advertising

Distribution

Profitability

Table 38: Financial Results for Northern Rock PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

EGG PLC

Corporate Strategy

Strengths and Weaknesses

Advertising

Distribution

Profitability

Table 39: Financial Results for Egg PLC (£m), Years Ending 31st December 2000-2002

Future Company Developments

12. The Future

MARKET SIZE

Consolidation

The Branch Network

The Direct Market

NEW DEVELOPMENTS

Demand Side Factors

Table 40: Average Earnings Growth Rate, Gross Domestic Product and Unemployment ( percent) 2002/2003-2004/2005

Table 41: Retail Prices and House Prices (1987=100 and percent), 2000-2002

Supply Side Factors and Mortgage Churn

Regulation

DEMOGRAPHIC CHANGES

Table 42: Historical and Forecast UK Population by Country (million), 1991, 2001, 2011, 2021 and 2025

Table 43: UK Households by Size ( percent and number), 1971, 1981, 1991 and 2002

Table 44: Number of Households in England (000), 2001, 2006, 2011 and 2016

MARKET DYNAMICS

Political Factors

Economic Factors

Social Factors

Technological Factors

CONCLUSION

13. Further Sources

Associations

Publications

General Sources

Bonnier Information Sources

Government Sources

Other Sources

EXECUTIVE SUMMARY

The UK mortgage market continues to be extremely competitive. It is providing consumers with cheaper mortgages, increased flexibility and product range, and more choice in how to buy a mortgage.

The market is also broadening, with the sub-prime categories now able to choose from a range of large providers for a mortgage thanks to a wave of new niche market entrants and the entry of the traditional lenders into this part of the market.

One of the major factors affecting the market in the near future will be government regulation: this is to be put in place following the numerous scandals over endowment mortgages and the subsequent loss of public and government confidence in the mortgage market to regulate itself. It is still unclear exactly what the regulations will look like, but it is likely to increase costs and push some players out of the market and lead to further consolidation.

Mortgage providers still continue to offer 'direct' mortgages to consumers through multiple channels. It is now common for most mortgage providers to offer numerous channels through which consumers can buy mortgages. The range of mortgage products on offer has increased rapidly, leading to wider choice for the consumer.

Internet sales of mortgages continue to grow fast, although the overall amount of business sold through these channels and their popularity remains low. Telephone sales have also experienced high growth rates since 1999 and, although more popular than Internet sales, continue to be less popular than the branch. Most traditional lenders have responded to these trends by halting or scaling back their branch closures while new market entrants have attempted to create a physical presence by partnering up with existing retail outlets in the high street and with supermarkets to create mini branches.

Direct sellers of mortgages are continuing to outsource many aspects of their business to companies that provide services, such as packaging, to a number of different mortgage providers. This enables sellers to concentrate on selling to the consumer and also to reduce their costs — again making the industry more competitive.

Key Note's exclusive survey of 948 adults, conducted by BMRB Access in July 2003, confirms a robust preference amongst consumers for face-to-face contact with the seller when purchasing a mortgage product and a continued reluctance to use the telephone or the Internet to buy a mortgage.

Despite the global economic downturn, the continued speculation over a possible fall in house prices in the UK and a levelling off in mortgage lending, it is still unclear whether the housing market is going to fall at all in the next 12 months and if so by how much.

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Last updated by Amanda Porteous October 2003