UK Mortgages: Competitive Landscape and Product Innovation

The market share of the top 10 mortgage providers has decreased as smaller lenders, particularly mutuals, increased their share of the market. The stabilization of the mortgage market has led to greater competition. As competition returns to the market, lenders are looking toward innovative ways of acquiring customers.

Features and benefits

• Understand how the competitive landscape has changed over the last year.
• Examine the strategies of lenders who have successfully increased their market share.
• Explore the performance of recent entrants and the prospects of potential entrants.
• Discover which lenders are innovating and how they are doing it.

Highlights

Four of the big five UK retail banking groups lost market share in 2011, as weak balance sheets, higher cost of funding, and the prospect of stricter regulation reduced their ability to lend. Smaller lenders increased their market share, benefiting from being more flexible with their lending criteria and less exposed to the European debt crisis.

The remortgage sector has slumped since the financial crisis as interest rate differentials between SVRs and reportage rates were not large enough for consumers to justify the cost of remortgaging. The increase in wholesale funding costs has forced many lenders to increase their SVRs in early 2012 and this may rejuvenate the remortgage sector.

The stabilization of the mortgage market since the crash of 2008–09 and the possibility of rejuvenation in the remortgage sector has led to greater competition and product innovation. A number of lenders are innovating by offering guarantor mortgages, cashback, and encouraging regular savings as a method of acquiring customers.

Your key questions answered

• Why have the biggest lenders in the UK lost market share and why have small lenders gained ground?
• Which players are competing the most heavily for first-time buyers?
• What has been the effect of rising wholesale funding costs and tighter regulations on the type of products lenders are offering?
• What added features are lenders offering as part of their mortgage products to acquire customers?

Table Of Contents

DATAMONITOR VIEW
Catalyst
Summary

STRATEGIC CONTEXT
Bigger lenders are losing market share to smaller lenders
HSBC has increased its share of the market despite tighter regulations and the eurozone crisis
LBG retains its position as the biggest mortgage lender despite losing market share
Santander's market share fell but it remains the second biggest lender in the UK
Barclays' market share has stabilized following a sharp increase
RBS has cut its lending significantly
Big bank lending has been depressed by regulatory requirements and the eurozone crisis
The eurozone crisis has pushed up the cost of interbank lending and will constrain mortgage lending
Small lenders increased their mortgage approvals by more than the industry average
Banks dominate but mutuals have increased their market share
The decline in the number of building societies appears to have bottomed out
New entrants and potential entrants will struggle to make a big impact on the mortgage market
Virgin Money's presence has been boosted by the acquisition of Northern Rock
Tesco's entry into the market continues to be delayed
Recent entrants have failed to revolutionize the market
New and recent entrants have been hampered by funding and branding problems
Mortgage Market Review proposals to ban non-advised sales may benefit brokers

STRATEGY IN FOCUS
Average mortgage rates have increased recently due to pressures in the wholesale markets
Lenders are increasing standard variable rates as funding costs bite
Greater competition and product innovation has followed market stabilization
Aldermore is offering borrowers the option to use parents for 100% loan-to-value mortgages
Nationwide and Halifax are encouraging first-time buyers to develop a savings habit before offering a high LTV mortgage
Offering cashback on mortgages is becoming popular with lenders
The NewBuy Guarantee scheme is too small in scope to have more than a marginal effect
Regulations are causing lenders to limit the sale of interest-only mortgages

APPENDIX
Supplementary data
Methodology
Definitions
Bank of England base rate
CAGR
Gross advances
Remortgaging
RMBS
Further reading
Ask the analyst
Disclaimer

List Of Tables

Table: Average mortgage rates, January 2010 to March 2012

List Of Figures

Figure: Four of the big five UK banks lost market share in 2011
Figure: Smaller lenders increased lending by more than the market average
Figure: Mutuals and specialist lenders have increased their market share
Figure: Building society numbers have stabilized after a period of consolidation
Figure: The Skipton and Yorkshire building societies have been the most active in the mergers and acquisitions sector
Figure: Average mortgage rates have started to rise despite a static base rate