UK Mortgage Market Outlook: Q1 2010

Introduction

The cautious recovery in gross lending in the latter part of 2009 has not been sustained in 2010. One-off factors such as the end of the stamp duty holiday and the general election have combined with longer-term issues such as restricted funding and lack of demand for remortgaging to depress lending.

Scope

*Provides an evaluation of the market and industry trends up to Q1 2010.

*Analyses the influence of factors such as interest rates, funding issues and property prices upon the mortgage market.

*Sets out Datamonitor's latest gross lending forecasts for the period 2010-2014.

Highlights

UK gross lending in Q1 2010 amounted to only £30 billion, lower even than in Q1 2009 and 64% below the level seen in Q1 2007.

Despite the difficult conditions, some lenders have started to bring new products to market, such as hybrid fixed/variable rate mortgages and high loan-to-value mortgages at more competitive rates than were previously available.

Wholesale funding continues to gradually ease, with a handful of new issues of residential mortgage-backed securities. Improving conditions have led some specialist lenders to re-enter the market, particularly in the buy-to-let sector.

Reasons to Purchase

*Understand the key issues that will drive the mortgage market in 2010 and beyond.

*Assess the prospects for an increase in lending activity over the next few years.

*Use Datamonitor's forecasts to help inform your future plans.


Report Highlights

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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The mortgage market got off to a slow start in 2010 2
Gross lending in Q1 2010 was even lower than in Q1 2009 2
One-off factors reduced activity in the mortgage market in early 2010 3
Low levels of lending have persisted into the spring 3
Low rates of remortgaging continue to hold back total gross lending 4
Signs have emerged that the recovery in house prices may be coming to an end 5
Uncertainty over the future direction of house prices may start to affect the supply of credit 7
The supply of mortgage finance remains severely restricted 8
High loan-to-value mortgages continue to improve in availability 9
High LTV mortgages are still very costly 10
More products are starting to become available at higher LTVs 10
Lower LTV mortgages are becoming steadily cheaper 11
Lower rates could help to revive remortgaging activity 12
The market will be pulled in different directions by opposing forces in the coming months 12
A handful of providers are starting to innovate once again 12
HSBC is marketing a hybrid fixed/variable rate mortgage 13
Barclays now offers a high LTV mortgage to applicants buying a property from Bovis Homes 14
Wholesale funding conditions are gradually improving 14
Specialist buy-to-let lenders are looking to re-enter the market 14
Non-mainstream borrowers are struggling to obtain finance 15
Restrictions on interest-only mortgages could affect first-time buyers 15
A persistently low base rate is forcing even some larger lenders to raise their SVRs 15
There is uncertainty as to how soon and how quickly the base rate will rise 16
The Bank of England is not anticipating a significant rise in the base rate in the near future 16
The Organisation for Economic Co-operation and Development is calling for a more rapid rise in rates 16
The newly elected government has started to reduce public spending and raise taxes 17
The 2010 emergency budget marks the start of the fiscal squeeze 17
Other government measures could stimulate the market to a small degree 18
Datamonitor forecasts a sluggish mortgage market over the next few years 18
Gross lending is expected to reach £260 billion in 2014 18
The optimistic scenario assumes gross lending will rise to £300 billion in 2014 20
Gross lending will reach £220 billion in 2014 under the pessimistic scenario 21
APPENDIX 23
Supplementary data 23
Definitions 28
Bank of England base rate 28
CAGR 28
Gross advances 28
Remortgaging 28
Methodology 29
Further reading 29
Ask the analyst 29
Datamonitor consulting 29
Disclaimer 29
List of Tables
Table 1: Forecast gross advances under the Datamonitor view (£m), 2010-14f 19
Table 2: Forecast gross advances under the optimistic view (£m), 2010-14f 21
Table 3: Forecast gross advances under the pessimistic view (£m), 2010-14f 22
Table 4: UK gross lending in first quarter (£m), 2005-10 23
Table 5: UK gross annual lending (£m), January 2007-April 2010 23
Table 6: Gross lending by product line (£m), January 2007-April 2010 24
Table 7: Monthly and annual changes in house prices (%), January 2007-May 2010 25
Table 8: Net balance of lenders reporting that an increase in house prices is boosting credit availability (%), 2007-10 26
Table 9: Net balance reporting an improvement in credit availability and lending criteria (%), 2007-10 26
Table 10: Net balance of lenders reporting an increase in mortgage availability (%), 2008-10 27
Table 11: Interest rates on fixed-rate mortgages (%), January 2007-May 2010 27
List of Figures
Figure 1: Gross lending remained subdued at the start of 2010 2
Figure 2: Gross lending to date in 2010 has failed to improve on the levels seen in 2009 4
Figure 3: Remortgaging has stagnated since the end of 2008 5
Figure 4: The rate at which house prices are rising is slowing down 6
Figure 5: Doubt over house prices is starting to have an adverse impact on the supply of mortgages 8
Figure 6: Mortgage credit availability has failed to improve in the early part of 2010 9
Figure 7: The availability of high LTV mortgages is continuing to improve 10
Figure 8: Rates on high LTV and low LTV products continue to diverge 12
Figure 9: HSBC now offers a hybrid fixed/variable rate mortgage 13
Figure 10: Gross lending will reach £260 billion in 2014 in Datamonitor's view 19
Figure 11: In the optimistic scenario, gross lending will hit £300 billion in 2014 20
Figure 12: Gross lending will rise to £220 billion in the pessimistic scenario 22

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