Mortgage Innovations

New Ideas for UK Lenders

Publication Date	December 2006
Publisher	Datamonitor
Product Type	Report
Pages	24
ISBN Number	not applicable
Product Code	DAT04405

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Summary

Introduction

In such a competitive market, innovation is an important way in which UK lenders can differentiate themselves from others in order to gain custom. What recent innovations in the UK and abroad can lenders use to their advantage? This briefing assesses such innovations and whether they could be relevant for lenders.

Scope

Discusses the key UK innovations by mortgage lenders over the past year.
Assesses the new innovations from abroad and whether they could be implemented in the UK.
Provides insight on what lenders should take into account to assess the implementation of innovation.

Highlights

Kent Reliance Building Society's intergenerational mortgage created a slew of debate when it was first released. While many lenders have stated that they are not currently looking to offer such a product, if the product were to catch on with consumers, Datamonitor believes that more lenders would be willing to offer it.

Canadian Imperial Bank of Commerce builds up loyalty by tying its mortgage to the well-known Aeroplan scheme. Expanding the provision of loyalty schemes is a real possibility for lenders. Indeed, UK lenders have not as yet tied a mortgage to any large, nationwide loyalty rewards scheme.

Ultimately, innovation is only worthwhile if it adds value to potential customers. Indeed, a lender's proposition albeit innovative must be competitive. Lenders should assess whether an innovation is likely to see demand, that it is easy to understand, and whether it is easy to market and distribute such a product.

Reasons to Purchase

Gain a thorough understanding of new mortgage innovations currently being tested in the UK and abroad.
Identify and evaluate the innovations that could be useful to grow your business.
Understand where the opportunities lie for UK lenders.

Content

Catalyst
Summary
Methodology
- AnaLYSIS
- In a mature market, innovation is key to differentiation and a successful business
- There is an ongoing need for innovation given the high degree of competition in the UK mortgage market
- Innovation can come in a variety of forms
- While innovations in the UK have been few and far between over the last year, there are a number worthwhile mentioning
- Product design: Kent Reliance's intergenerational mortgage created a slew of debate
- There has been significant criticism of the mortgage by the industry
- Yet such a mortgage is really a matter of perception
- Product design and structure: shared equity mortgages are a new product to the UK market and one with substantial potential
- But at present they are hindered by a number of weaknesses
- Repayment options: Premier Cru's Fine Wine Investment Mortgage is a creative but highly niche product
- Repayment options: amid criticisms, lenders continue to lengthen mortgage terms
- Customer acquisition and loyalty: Yorkshire Building Society attaches credit cashback rewards to its mortgage
- Customer acquisition: some lenders now offer conveyancing services to give the customer added convenience
- Product structure: the current economic climate has given rise to intermediaries offering new and unique remortgaging services for consumers going bankrupt
- Distribution: Mortgagebundles.com: the appearance and disappearance of an online mortgage auction site
- Yet there have been a number of important innovations abroad over 2005-6, some of which could be used by UK lenders
- Customer acquisition and loyalty: Canadian Imperial Bank of Commerce (CIBC) builds up loyalty by tying its mortgage to the well-known Aeroplan scheme
- Expanding the provision of loyalty schemes is a real possibility for UK lenders
- Product design: first time buyers in Canada and New Zealand - funding their deposit by 'borrowing' from their pension funds
- Canada's scheme is based on a loan whereas first time buyers in New Zealand do not have to pay the deposit back
- While an interesting idea, such a mortgage is not likely to become a reality in the UK
- Distribution: a number of French lenders offer a range of mortgage-related products 'in a pack'
- For example, Caisse d'Epargne offers a 'pack immobilier'
- UK lenders could quite easily create their own version of a 'pack'
- Customer acquisition and loyalty: BBVA is tapping into the first time buyer market through a current and savings account
- UK lenders could be well-rewarded by creating a loyalty-based "youth brand"
- Product design: 50 year mortgages are now available in Spain and Portugal
- If UK lenders can negotiate their way around potential negative criticism, lenders will be able to introduce 50 year mortgages
- Marketing and cross-selling: UBS Switzerland's family mortgage links with its pension fund
- This type of innovation already occurs in the UK, but has potential for further development
- But ultimately, innovation is only worthwhile if it adds value to potential customers
- Innovative products or characteristics must add value to a lender's proposition
- There are a number of success ingredients that lenders should take into consideration when looking at implementing innovation
Appendix
- Definitions
- Interest-only mortgage
- Open Market Homebuy scheme
Further reading
- European mortgage reports
- UK mortgage reports
- UK mortgage briefings
- Forthcoming mortgage briefings
- UK Mortgage Market Map 2006
- Key Features
- For further information
- Relevant links
- Datamonitor's custom research capabilities
- Ask the analyst
List of Tables
- Table 1: Total discount on a 130,000 mortgage over three years, September 2006
List of Figures
- Figure 1: Caisse d'Epargne states that it offers the most complete 'pack immobilier' on the market, November 2006
- Figure 2: The UK Mortgage Market Map 2006 covers a wide range of mortgage sectors
- Figure 3: Taxonomy of UK Mortgage Market Map 2006
- Figure 4: Datamonitor's core consulting capabilities