UK Mortgage Market Outlook: Updated Forecasts

Introduction

Mid-September 2007 has seen the most dramatic fallout so far from the US sub-prime mortgage crisis, with events at Northern Rock leading to the first 'run on a bank' in the UK in over 100 years. With less funding available, what implications will the latest developments have on the performance of the UK mortgage market?

Scope

• Details Datamonitor's latest scenario based forecasts for the future of the UK mortgage market.
• Provides 3 forecasting scenarios.

Highlights

Despite the Bank of England freezing the base rate at 5.75% since July 5, 2007, inter-bank borrowing costs have continued to rise due to less available funding and higher uncertainty.

The majority of UK lenders have hiked their mortgage rates, including Abbey and Bank of Scotland. Moreover, niche mortgage lenders, particularly sub-prime lenders, have raised their prices following the US sub-prime mortgage debacle.

Despite expected lower lending levels in the last few months, the fact that the mortgage market delivered a record performance in the first half of 2007 will ensure that the sector reaches a new peak in 2007.

Reasons to Purchase

• View the latest independent annual forecasts for the UK mortgage market to plan your future strategy with confidence.
• Understand the impact of reduced funding on the performance of the UK mortgage market.

• Catalyst
• Summary
• Analysis
  • Funding issues are likely to impact upon the UK mortgage market going forward
  • in the UK, mortgage bank Northern Rock was hit hard by funding issues
  • Reduced funding will impact negatively upon the UK mortgage market in 2008
  • The credit squeeze has led to an increase in inter-bank borrowing costs
  • Less funding also means that lenders will have to decrease lending to certain customer segments
  • Mortgage gross lending is still set to hit a record level in 2007, despite funding issues
  • An outstanding H1 2007 will ensure that mortgage lending reaches a new peak in 2007
  • 2008 will be a slow year for the UK mortgage market
  • under the Datamonitor view, the UK mortgage market will contract to 332.2 billion in 2008
  • Given the unpredictability of the UK mortgage market, Datamonitor has analyzed two additional alternative scenarios
  • The pessimistic scenario assumes a house price crash
  • The optimistic scenario adopts a bright view of the economy
• Appendix
  • Supplementary data
  • Definitions
  • Bank of England base rate
  • CAGR
  • Gross advances
• Libor
  • Loan-to-value (LTV)
  • Second charge loan
  • Sub-prime
  • Methodology
  • Forecasting methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: Forecasted gross advances in the UK residential market under the Datamonitor view, 2006-11f
  • Table 2: Forecasted gross advances in the UK residential market under a pessimistic view, 2006-11f
  • Table 3: Forecasted gross advances in the UK residential market under an optimistic scenario, 2006-11f
  • Table 4: Three-month LIBOR rate and Bank of England base rate, (Table 1 of 2)
  • Table 5: Three-month LIBOR rate and Bank of England base rate, (Table 2 of 2)
  • Table 6: UK monthly gross mortgage advances, 2006-07, January-June, (m)
  • Table 7: Forecast macroeconomic variables used in Datamonitor view scenario, 2005-11f
  • Table 8: Forecast macroeconomic variables used in the pessimistic scenario, 2005-11f
  • Table 9: Forecast macroeconomic variables used in the optimistic scenario, 2005-11f
• List of Figures
  • Figure 1: despite a stabilized base rate, the three-month LIBOR rate has risen significantly, September 2, 2007 to September 21, 2007
  • Figure 2: UK gross mortgage lending in the first six months of 2007 outperformed 2006 levels
  • Figure 3: Datamonitor forecasts a 7% decrease in gross lending in the last four months of 2007 over 2006 levels
  • Figure 4: under the Datamonitor view, gross lending in the UK mortgage market will contract to 332.2 billion in 2008
  • Figure 5: under a pessimistic scenario, gross lending in the UK mortgage market will reach a low of 292.9 billion in 2008
  • Figure 6: under the optimistic scenario, gross lending in the UK mortgage market will grow healthily to reach 425.3 billion in 2011