Summary
The outlook for the residential mortgage market remained fairly neutral in 2019. Growth in gross mortgage lending is expected to be around 4.5% in 2020, which is broadly unchanged on 2019. During the forecast period (2019-23), gross advances are expected to record a compound annual growth rate of 5%, reaching £339bn. The supply side has been positively affected by the government’s schemes supporting first-time buyers, while stricter controls on buy-to-let lending will improve matters by reducing investor demand for properties. On the demand side, weak economic growth and shrinking consumer confidence will reduce the willingness of consumers to take on more debt. However, low mortgage rates, weakening house price growth, and falling unemployment will help underpin demand for borrowing. In the near term at least, we remain unconvinced that mortgage market trends will break away from the recent sluggish picture.
This report offers five-year gross lending forecasts for residential and niche mortgages until 2023, along with a detailed examination of the various demand- and supply-side factors that will determine the market outlook. It offers insight into key macroeconomic, regulatory, and other factors that will drive demand for and supply of mortgages over the next five years. It also explores the outlook for niche sectors, including buy-to-let, equity release, shared ownership, shared equity, and self-build.
Scope
- Unprecedented levels of regulation and tax intervention and a recent prohibition on letting sub-standard properties have further stifled the appeal of the buy-to-let market.
- Equity release has demonstrated significant year-on-year growth.
- The popularity of second charge finance is continuing to grow. A tighter regulatory framework will boost the second charge mortgage market by raising levels of consumer trust and confidence.
- The market for green mortgages is seemingly flat. Few providers offer the mortgage and few customers choose to bear the additional cost associated with one.
Reasons to buy
- Develop more targeted strategies through analysis of key mortgage market developments.
- Inform your future plans with our five-year forecast of gross advances for niche product lines.
- Analyze trends with details of historic gross advances across a range of specialist mortgage sectors and product types.
- Benchmark yourself against competitors and ensure you remain competitive as new innovations begin to enter the market.
- Be prepared for how regulation will impact the mortgage market over the next few years.
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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
