Non-standard Lending - UK: Industry Report

Non-standard Lending - UK

Product Type: Market Research Report
Published by: Mintel International Group Ltd.
Published: November 2007
Product Code: R560-2989

Description

Two decades of global financial innovation are under threat following the default on hundreds of thousands of sub-prime mortgages in the US. In the UK, the emergence of the non-standard mortgage market in the past decade has been based largely on similar securitised financing techniques used in the US, enabling risk to be transferred away from lenders to investors. These techniques have enabled large numbers of people who do not meet mainstream lenders criteria to be offered mortgages by a new breed of specialist lenders.

Demand for these non-standard mortgages will continue to grow as people’s financial circumstances become ever more complicated. However, accessing such facilities will become harder. This report assesses the implications of the credit crunch on non-standard lending, which is no longer a niche part of the mortgage industry.

Mintel’s report will provide a thorough appraisal of the current state of the UK non-standard mortgage market and assess its prospects for growth. The report offers:

an investigation into the internal and broader macroeconomic factors impacting on the market
an overview of the market’s competitive context, and its strengths and weaknesses
insight into the leading views of experts
an examination of recent and projected market growth and segment performance
an appraisal of the supply side of the market, including market shares of the largest mortgage lenders
comments on product innovation, distribution and promotion
consumer demand for lending products
the results of Mintel’s independently-commissioned consumer research, which offers insight into the leading, characteristics, attitudes, and behaviour of the non-standard consumer.

Table of Contents

Issues in the Market: Historical context; Scope of the report; Key issues examined; Market Definitions; Abbreviations
Market in Brief: The ‘non-standard’ market comprises a broad range of borrower types; Shifting demographics and behaviours expand the market; New companies have emerged to cater for these changing needs…; …but the recent credit crunch halts further product development; Leading brands in the sector; Non-standard business accounts for a third of total mortgage lending; The wider mortgage market; More difficult times ahead; Regulatory pressures set to intensify; Key consumer research findings: identifying the non-standard consumer; Applying for a mortgage
Internal Market Environment: Key Points; US sub-prime meltdown…; …and financial market contagion…; …lead to consumer panic and crisis at Northern Rock; Pulling down the shutters; Rate shock; Sub-prime and self-cert sectors come under the regulatory microscope; FSA study into sub-prime results in five firms facing enforcement action; Treating Customers Fairly; Consumer Credit Act, 2006 will boost opportunities in secured loans market; Keeping up with the changing needs of borrowers; Pricing risk in a climate of rising indebtedness; Debt is a way of life for around half the population; The Easy-debt Society; Companies starting to share customer information; Debt judgements hit ten-year high; Implication; Majority of people dislike being in debt; The threat of escalating mortgage debt write-offs; Home repossessions on the rise; Implication; Individual insolvencies spiral upwards; Tackling over-indebtedness; The growth in debt consolidation
Broader Market Environment: Key Points; Clouds loom over the UK economy; Implication; Sharp drop in borrowing activity; Still bright employment picture; Implications; The debt mountain edges up higher; Implications; Average household debt over £53,000; Are interest rates taking effect?; The role of LIBOR comes to the fore; Mortgage rate rise; Implications; Signs of a slowdown; HIP invasion; Affordability; The London effect; House price growth set to moderate…; …but BTL may flourish
Competitive Context: Key Points; Firm growth in mortgage demand; Specialist lenders taking market share; Specialist lenders have a greater focus on house purchase; Specialist lenders’ share of the main mortgage sectors; Outlook; Growth rate of consumer credit slowing down; Changing shape of non-standard specialists
Strengths and Weaknesses in the Market: Growing demand offset by tougher operating environment; Unchartered waters beckon, unless interest rates fall suddenly; Financial risks facilitate the need for consumer education
Market Size and Forecast: Key Points; Sizing the non-standard population; A sizeable minority relying on non-standard providers; The post-Northern Rock Environment; Credit scoring; Most have an unblemished record; From squeaky clean to torpedoed prime; Forecasting the non-standard market; The Stationary Demographic Scenario; Shifting definitions; Gainers and losers - The Squeeze Scenario; Almost a million could be lost…; …but the gains could be greater; This means a 2008 potential consumer base of 17.83 million; Gainers and losers - The Tight Squeeze Scenario; The more restrictive - the better it is for the non-standard sector; A tighter squeeze better for number of potential customers
Segment Performance: Key Points; Roughly two in five mortgages are ‘non-standard’; Gross mortgage lending picks up strongly in 2006; Total non-standard mortgage market worth £125 billion in 2007; Little impact of rising interest rate on BTL sector; Affordable housing; Shared-ownership schemes; A niche sector set for further expansion; Right-to-Buy; Self-certification; Self-cert and fast track mortgages a cause for concern?; Full range of products; Sub-prime - US contagion set to spread to UK; Mounting arrears and repossessions likely - calls for greater regulation inevitable
Market Share: Key Points; HBOS is the leader of the pack, by a wide margin; Non-standard specialists grew their balances strongly in 2006; Changes afoot?
Companies and Products: Key Points; Some 30 lenders operate in the non-standard mortgage market; Recent entrants; The largest non-standard lenders; Birmingham Midshires; GMAC-RFC; GE Money Home Lending; Kensington Mortgages; Mortgage Express; Other significant players; Debt consolidation companies prosper; Leading suppliers
Brand Communication and Promotion: Key Points; Non-standard mortgage brands will mean little to consumers; Poor financial promotion in sub-prime sector; Most non-standard specialists target their advertising at IFAs and brokers rather than consumers; Specialist mortgages account for just 1% of total mortgage adspend; The largest specialist mortgage advertisers have budgets around £0.5 million; Implication; More advertising for secured than unsecured personal loans; Implication; Picture Financial - largest-ever financial start up growing its presence in secured loans market
Channels to Market: Key Points; Most non-standard business is generated via intermediaries…; … referrals come mainly from IFAs, mortgage brokers, packagers, and mortgage clubs; Packagers provide a supporting role to brokers and lenders; Online developments at heart of distribution; Online revolution
The Consumer - Credit Ownership and Usage: Key Points; Credit cards and mortgages most-widely-held credit products; 25-45-year-olds biggest users of credit; 55-64-year-olds taken most to plastic cards; Family lifestage key to the mortgage market; MPPI - giving non-standard lenders a degree of safety?; The importance of cross-selling; Four-fifths of borrowers use mainstream lenders; Young people, DEs, and families more likely to use non-standard lenders; People likely to be struggling financially are more likely to use non-standard lenders; Scotland has the highest proportion of consumer credit borrowers; All ‘new’ media users most likely to borrow; Implications and opportunities; Car and home improvements top credit usage; Mainstream lenders used most for car purchase, non-standard lenders most for essential household items; Implications and opportunities
The Consumer - Credit Risk Factors: Key Points; A large proportion of the population falls outside prime lending criteria; Older age groups have higher credit risk; Similar incidence of impaired credit factors amongst C1, C2 and Ds; More credit impairment in lower income bands; Higher incidence of credit impairment in Scotland; Implications and opportunities; Some 4.3 million people may struggle to get a mainstream mortgage; Lack of income a major constraint for first-time buyers and singles; ABC1s more confident of mainstream mortgage availability; Three-quarters of current mortgage borrowers expect to get a mortgage/remortgage from a mainstream lender; Implications and opportunities

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