UK Mortgage Market 2019: Forecasts and Future Opportunities to 2023

Table of Contents

1. EXECUTIVE SUMMARY

1.1. Market summary

1.2. Key findings

1.3. Critical success factors

2. THE MORTGAGE MARKET WAS SET FOR SLOW GROWTH IN 2019

2.1. Supply and demand factors will combine to deliver sustained growth

2.2. Supply-side factors will ensure stable growth in mortgage availability

2.2.1. Regulatory interventions are reducing confidence in the buy-to-let market

2.2.2. First-time buyers continue to benefit from Help to Buy

2.2.3. The mortgage price war has also provided a boost to first-time buyers

2.2.4. SOAHP will continue to support home ownership

2.3. Factors will exert both upside and downside pressures on demand

2.3.1. Macroeconomic factors point towards a modest increase in demand

2.3.2. Improving consumer confidence will boost demand for mortgages

2.3.3. House price growth has been softening since the middle of 2016

2.4. Lloyds remains the biggest mortgage lender despite losing share

2.4.1. The mortgage price war will continue to squeeze the profits of small players

2.5. Increased competition is resulting in visible signs of pressure in the UK mortgage market

2.6. There is plenty of scope for innovation in the mortgage market

2.6.1. Molo offers a hassle-free way to take out a mortgage

2.6.2. Tandem is the first provider to launch intelligent, co-created mortgages

2.6.3. MoneySuperMarket’s Podium is an onsite digital mortgage broker

2.6.4. Dashly partnered with Castlight Financial for an advanced affordability tool

2.6.5. HM Land Registry service enables consumers to sign their mortgage deeds online

2.6.6. Mortgage Brain offers affordability checker tool

3. NICHE MORTGAGES WILL EXPERIENCE VARYING FORTUNES

3.1. Buy-to-let activity remains under pressure

3.2. Shared equity will grow at a slower pace over the next few years

3.3. Shared ownership growth will be supported by staircasing reforms

3.4. Right to Buy will grow moderately over the next few years

3.5. Equity release is performing strongly at present

3.6. Self-build lending will remain a niche area for the foreseeable future

3.7. The secured lending market will accelerate at a rapid pace post-2020

3.8. Professional and graduate mortgage lending is stagnating

3.9. Islamic lending will benefit from improving credit supply and new products

4. PRODUCT VARIATIONS

4.1. Offset mortgage lending will decline

4.2. Large-value mortgage lending will return to its pre-crisis peak

4.3. Near-prime lending is one of the fastest-growing sectors

5. GREEN MORTGAGES: ASSESSING THE FEASIBILITY OF SUCCESS IN THE UK

5.1. The UK banking market offers a range of green-friendly products

5.1.1. While there is a standard definition of green mortgages, the product takes many different forms

5.2. The market for green mortgages is still small, and most green mortgage providers are small lenders

5.3. Green mortgages are likely to remain a niche product

5.3.1. The UK mortgage market is driven by price

5.3.2. There is limited demand for green mortgages

5.3.3. Very few lenders offer the product, thus limiting supply and product choices

5.3.4. The green proposition is likely to provide a competitive advantage to lenders if a customer has to choose between two similarly priced products

5.4. Widespread uptake will require government and institutional commitment

5.4.1. Some incentives have been put in place, but the market view is that they are not enough

5.4.2. Realizing the potential of ethical and environmentally friendly products is a significant opportunity for banks

5.4.3. Branches remain the most popular application channel for mortgage arrangement

5.4.4. Sustained co-operation between lenders and the government is needed to grow the green mortgage market

5.4.5. The UK needs to stimulate greater awareness of green building among the general public

6. APPENDIX

6.1. Abbreviations and acronyms

6.2. Definitions

6.2.1. BoE base rate

6.2.2. Gross advances

6.2.3. Remortgaging

6.3. Methodology

6.3.1. Market sizing and forecasts

6.3.2. Future Sentiment Index

6.4. Secondary sources

6.5. Further reading

List of Figures

Figure 1: Growth in lending has decelerated but will remain positive over the next few years

Figure 2: Buy-to-let house purchase activity has been flat since June 2016

Figure 3: The number of legal completions under Help to Buy rose by 14% in Q4 2018 compared to the same period of 2017

Figure 4: 60% of the homes purchased by first-time buyers had a price of £250,000 or less

Figure 5: Affordability for first-time buyers varies significantly across the country

Figure 6: Average earnings growth has outpaced rental growth, providing positive economic conditions for first-time buyers

Figure 7: The mortgage price war was primarily responsible for the increase in high LTV products in Q1 2019

Figure 8: Lenders continue to aim for higher LTV lending as arrears remain at historic lows and low mortgage rates support affordability

Figure 9: SOAHP funding and homes by Homes England operating area, March 2018

Figure 10: Stable economic conditions will positively impact demand for mortgages

Figure 11: Consumer confidence picked up towards the end of 2019

Figure 12: UK house price growth is well below its recent average

Figure 13: Nationwide’s improving market share makes it the second biggest lender in the UK

Figure 14: Molo is a fully digital mortgage solution that provides mortgages in 15 minutes

Figure 15: Buy-to-let gross advances will grow at an average of 6-7% over the forecast period

Figure 16: Help to Buy will power a sustained average increase of 11% per year in shared equity lending

Figure 17: Shared ownership gross lending will grow at an average of 19% going forward

Figure 18: Right to Buy lending will grow at an average rate of 7% over the forecast period

Figure 19: Growth in availability and demand will see equity release gross advances reach over £9bn by 2023

Figure 20: The UK’s self-build share of 11% is the lowest compared to other European markets

Figure 21: The self-build market is set to grow at an average of 6-8% over the forecast period

Figure 22: Annual second charge mortgage new business volumes reached a decade high of 27,092

Figure 23: Secured lending will see stable growth at an average of 10% over the forecast period

Figure 24: A lack of providers operating in the space means professional and graduate lending will remain low over the forecast period

Figure 25: Rising awareness of Islamic finance will lead to growth in mortgage lending

Figure 26: Waning demand will result in contraction in the offset mortgage sector

Figure 27: Large-value mortgage demand will be driven by wealthy foreign buyers

Figure 28: Near-prime lending will record impressive average growth of 22% over the forecast period

Figure 29: Ethical finance almost doubled from 2010 to 2017

Figure 30: Ecology Building Society offers three types of mortgage discount

Figure 31: A relationship-driven approach is important to attract consumers supporting ethical and environmental causes

Figure 32: The majority of mortgage holders arranged their mortgage directly with their provider