Impact of the Credit Crunch on UK Mortgage Product Structures

The severe repercussions from the US sub-prime crisis have been felt in most of the world's economies, but none more so than Western Europe, and in particular the UK. The effects of this lack of liquidity have turned the UK mortgage market on its head, and lenders are now making sweeping changes to product structures in an effort to stabilize their product portfolios in the turmoil.

Report Highlights
The first quarter of 2007 saw 503,000 mortgage deals written for a total of £84 billion. In the first quarter of this year, approximately half that number were written, while the value of mortgage deals dropped by almost £10 billion to £75 billion.

The market has decreased steadily since June 2007, but the largest drop occurred in 2008, resulting in a cut of almost 800 mortgage offers from the market.

Although it is unlikely to recover to pre-credit crunch levels, the mortgage market needs to stabilize in order for a traditional and affordable mortgage product structure to resurface.
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DATAMONITOR VIEW 1
SUMMARY 1
ANALYSIS 2
Overview 2
Allianz is set to increase its regional presence and improve its SME offering, while high car hire costs push up its combined ratio 2
Allianz unit looks to increase its regional strength 2
Allianz moves to improve SME offering 2
Allianz pins the blame on car hire costs for higher than expected combined ratio 2
AXA loses UK chief executive, proceeds with integration of SBJ and reconsiders MGA relationships 3
AXA reshuffle sees departure of Hubbard 3
AXA changes mind regarding integration of SBJ 3
New AXA boss reconsidering MGA relationships 4
Fortis moves into mobile phone travel insurance and reshapes both its commercial and personal lines propositions 4
Fortis enters into text message travel insurance deal 4
Fortis overhauls commercial lines proposition 5
Fortis revamps personal lines offering for HNW market 5
Groupama acquires motor trade specialist and introduces improvements in broker offering 5
Groupama adds ChoiceQuote to its ranks 5
Groupama improves online broker service 6
HBOS teams up HSBC and Lloyds TSB to acquire EIS 6
HBOS, HSBC and Lloyds TSB take control of EIS 6
Norwich Union looking to re-brand itself under Aviva banner and prevent consolidators from becoming too powerful 6
Aviva set to phase out Norwich Union brand over next two years 6
Norwich Union leads fight back against consolidator dominance 7
Norwich Union looks to reduce cost base 7
RBS stuns the market with announcement of proposed disposal of RBSI 8
RBS announces intention to sell insurance division 8
RSA wins deal with Ford, aims to provide relationship managers to brokers and enters into HNW arrangement 8
RSA wins lucrative deal to become sole provider of car insurance for Ford 8
RSA launches scheme to provide relationship managers to brokers 8
RSA agrees HNW deal with Smith Greenfield 9
Zurich enters into partnership with Howden, expands M&A team and announces cost cutting exercise 9
Zurich enters into PI partnership with Howden 9
New London office part of Zurich's expanding M&A operation 10
Zurich looks to reduce workforce in attempt to cut costs 10
Towergate sells share to hedge fund while Oval puts itself up for sale and new online SME broker prepares to launch 11
US hedge fund acquires £100m stake in Towergate 11
Oval puts itself up for sale for £300m 11
New online broker attracts former Willis chairman 11
APPENDIX 13
Ask the analyst 13
Datamonitor consulting 13
Disclaimer 13
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Table 1: Largest reductions in mortgage product offering by lender, June 2007-08 4
Table 2: Lenders closed to new business, by number of mortgage deals offered in June 2007 5
Table 3: Comparison of top 10 lenders' maximum LTV ratios, June 2007-08 8
Table 4: Top five cheapest and top five most expensive SVR mortgage offers, June 2008 9
Table 5: Comparison of top 10 lenders' fixed and standard variable rate mortgage offers, June 2008 10
Table 6: The number of prime residential mortgage offers, June 2007-June 2008 16
Table 7: Number of sub-prime mortgages and sub-prime lenders, June 2007-08 16
Table 8: The number of 95% LTV mortgages and the number of 100% and 100%+ LTV mortgages, June 2007-June 2008 16
Table 9: Average maximum borrowing, June 2007-June 2008 17
Table 10: Number of first time buyer and remortgage offers, June 2007-June 2008 17
Figure 1: Prime residential mortgage deals have decreased significantly since June 2007 3
Figure 2: The number of sub-prime mortgages has halved in one year 6
Figure 3: Mortgages with 100%+ LTV ratios have all but disappeared from the market 7
Figure 4: Average maximum borrowing decreased by £200,000 in H2 2007 12
Figure 5: Mortgage offers for first-time buyers and remortgagers fell sharply in Q2 2008 14
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