The UK Mortgage Market in 2006 and Future Outlook (Market Focus)

After a muted performance in 2005 during which the UK mortgage market contracted slightly, 2006 unexpectedly delivered a record performance. Improved consumer confidence, stronger house price growth and better economic prospects than expected, assisted in delivering strong results. Nonetheless, the mortgage market remains affected by some serious issues.

Report Highlights


Unexpectedly, the mortgage market got off to an impressive start and hit record lending levels in each single month with the end result of a record-breaking performance of £344.9 billion in 2006, representing an increase of 19.6 per cent on the 2005 level (£288.4 billion). FTBs accounted for 36.0 per cent of loans advanced for house purchase in 2006, compared to 44.7 per cent in 2000. Despite an increase in loans for house purchase and gross advances accounting for FTBs over 2005, this customer segment lost share in 2006, in the wake of strong house price inflation. The latest survey (September 2006), carried out for the Bank of England by NMG Research about the state of household finances, revealed that the proportion of UK households who stated they are having problems with repaying their mortgage has increased slightly to 7.7 per cent in 2006.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The UK mortgage market delivered a record performance in 2006 2
The UK mortgage market by far surpassed industry expectations in 2006 by reaching a new high 2
Even two increases in the base rate in H2 2006 did little to curb the mortgage market 3
While the product lines 'loans for house purchase' and 'other' benefited considerably from the rejuvenated mortgage market, remortgaging's performance was mixed 3
Mortgage lenders' successful retention strategies are partly responsible for the relatively subdued performance of remortgaging 4
Buy-to-let drove the 'Other' category 4
Healthy GDP growth and strong house price inflation drove the mortgage market in 2006 5
A relatively strong UK economy in 2006 has assisted in boosting the mortgage market 5
Strong house price inflation boosted the mortgage market in 2006 5
But all is not rosy as a number of issues remain 6
The issue of whether the housing market is heading towards a crash or not is still of relevance 6
High levels of personal indebtedness continue to be a major threat to the state of the UK mortgage and consumer credit markets 7
Affordability remains a critical issue for first-time buyers 10
Consumer confidence remains subdued 12
The sub-prime market is adding more uncertainty to the mix 12
What are the implications for the future of the UK mortgage market? 13
Under the Datamonitor's View, the UK mortgage market will continue to grow but at a slow rate 13
Given the unpredictability of the UK mortgage market, Datamonitor has analyzed two additional alternative scenarios 15
The pessimistic scenario assumes a house price crash 15
The optimistic scenario adopts a bright view of the economy 17
APPENDIX 19
Supplementary data 19
Definitions 21
AAGR 21
Bank of England base rate 22
Balances outstanding 22
Buy-to-let mortgage 22
CAGR 22
CCJs 22
Gross advances 22
Mortgage intermediary 22
Non-standard and sub-prime 22
Methodology 22
Forecasting methodology 23
Further reading 23
Ask the analyst 24
Datamonitor consulting 24
Disclaimer 24

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Table 1: Gross advances and number of loans accounted for by first-time buyers, 2002-2006 11
Table 2: Forecasted gross advances in the UK residential market by product lines under Datamonitor's view, 2006-2011f 14
Table 3: Forecast macroeconomic variables used in Datamonitor's View scenario, 2005-2011f 15
Table 4: Forecasted gross advances in the UK residential market by product lines under a pessimistic view, 2006-2011f 16
Table 5: Forecast macroeconomic variables used in the pessimistic scenario, 2005-2011f 17
Table 6: Forecasted gross advances in the UK residential market by product lines under an optimistic view, 2006-2011f 18
Table 7: Forecast macroeconomic variables used in the optimistic scenario, 2005-2011f 18
Table 8: Quarterly gross advances in the UK mortgage market, 2002-2006 19
Table 9: Total mortgage gross advances split by product lines, 2002-2006 20
Table 10: Indexed gross advances for UK mortgage market and buy-to-let, 2002-2006 20
Table 11: Annual house price growth on a quarterly basis, Q1 2003-Q4 2006 21
Table 12: Properties in possession in period, 1998-2006 21


Figure 1: Gross advances in the UK mortgage market were at a record-breaking level in 2006, 2002-2006 2
Figure 2: Remortgaging grew at a slower rate than the other two product lines in 2006, 2002-2006 3
Figure 3: The buy-to-let mortgage market has assisted in driving the overall mortgage market in 2006, 2002-2006 5
Figure 4: Data from both Halifax and Nationwide highlights that house price growth picked up in 2006 after appearing to cool down , Q1 2003 - Q4 2006 6
Figure 5: The average UK adult owed £4,522 in unsecured personal debt as at the end of 2006, 2002-2006 8
Figure 6: Mortgaged properties in possession have increased since 2004, although it is still relatively low, 1998-2006 9
Figure 7: FTBs' share of the mortgage market declined slightly in 2006, although the number of loans and gross lending accounted for by FTBs rose, 2002-2006 10
Figure 8: Consumer confidence stabilized over most of 2006, May 2004 to December 2006 12
Figure 9: Under the Datamonitor's View, the UK mortgage market will rise steadily to reach £395.1 billion in 2011, 2006-2011f 14
Figure 10: Under a pessimistic view, the UK mortgage market will reach a nadir £280.8 billion in 2008 before picking up, 2006-2011f 16
Figure 11: Under an optimistic view, the UK mortgage market will rise steadily to reach £437.6 billion in 2011, 2006-2011f 17

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