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UK Self-certification Mortgages 2007 (Segment Report)

  • Publication Date:May 2007
  • Publisher:Datamonitor
  • Product Type: Report
  • Pages:58

UK Self-certification Mortgages 2007 (Segment Report)

Introduction

The UK self-certification mortgage market has grown significantly in recent years, partly due to changes in lifestyle. But how much of this growth can be accounted for 'true' self-cert? Moreover, what are the major issues affecting this sector? How competitive is it? This report provides the answers.

Scope

  • Sizes the self-certification mortgage market in terms of gross advances.
  • Analyses market trends in the self-certification mortgage markets.
  • Examines the competitive structure of the market and looks at how the competitive environment has evolved over the past five years.
  • Provides a five-year forecast for self-certification mortgages.

Highlights

The self-certification mortgage market recovered in 2006 after a slight fall in new lending in 2005. Take-up of self-certification mortgages continues to be dominated by the self-employed and contract workers, implying that this niche market is at a greater risk if the UK economy takes a downturn.

The self-certification mortgage market is served primarily by specialist lenders who distribute their products through intermediaries. This niche sector is becoming increasingly competitive due to internal competition from specialist lenders as well as external competition from mainstream lenders offering fast-track mortgages.

The self-certification mortgage market remains a popular segment for lenders despite receiving bad publicity in the past. The market has adapted well to new regulations and products are becoming more flexible. There is an increasing need for self-certification mortgages since consumers work lives are evolving and becoming less conforming.

Reasons to Purchase

  • Gives you a competitive edge by sizing the UK self-certification mortgage market for 2006.
  • Provides the market share of the leading lenders in the self-certification mortgage market.
  • Draw on Datamonitor's five-year scenario-based forecasts to plan your future strategy with confidence.
  • Overview
  • Catalyst
  • Summary
  • Executive Summary
    • Self-certification mortgages explained
    • There are two major types of player in the self-certification mortgage market
    • The self-certification mortgage market grew at an annual average rate of 17.8 per cent from 2002 to 2006
    • HBOS is the leading player in the self-certification mortgage market
    • A more competitive market has led to self-certification mortgage rates falling despite repeated base rate increases over the last two years
    • In the Datamonitor's View scenario, gross advances for self-certification mortgages continue to grow strongly and outperform income verified mortgages
    • An introduction to the self-certification mortgage market
    • Self-certification mortgages explained
    • With a self-certification mortgage, the lender requires little or no proof of the borrower's income
    • A self-certification mortgage is a catch-all product aimed at borrowers who cannot or choose not to verify their income
    • Self-certification mortgages fall into the category 'income non-verified' mortgage lending products
    • Are fast-track mortgages self-certification mortgages in disguise?
    • The UK self-certification mortgage market was worth 17.3 billion in 2006
    • Methodology used in sizing the UK self-certification mortgage market
    • Step one: sizing the self-certification population
    • Step two: converting to households
    • Step three: converting to households owned with an outstanding mortgage
    • Step four: calculating proportion of total population with self-certification mortgage
    • Step five: calculating self-certification mortgage gross advances
    • The self-certification mortgage market grew at an annual average rate of 17.8 per cent from 2002 to 2006
    • Year-on-year growth reveals that the self-certification mortgage market recovered in 2006 after underperforming in 2005
    • In terms of customer groups, the self-employed were the biggest contributors to the self-certification mortgage market
    • The self-employed accounted for 71.0 per cent of gross self-certified mortgage lending in 2006
    • Fixed-term contract employees accounted for 23.0 per cent of gross mortgage lending
    • The average annual growth of self-certification mortgages outpaced that of income verified mortgage lending during the period 2002 to 2006
    • Self-certification mortgages have continuously gained market share over the last five years
    • Various factors have contributed to the growth of the self-certification mortgage market
    • Strong macroeconomic conditions have created an environment that has led to the growth in the self-certification mortgage market
    • Furthermore, factors specific to the self-certification mortgage market have enhanced this market further
    • However, a few issues may impact on the future of the self-certification mortgage market
    • Borrowers are still overstating their incomes leaving them at a higher risk of defaulting
    • A new investigation into the self-certification mortgage market has been announced by the FSA to ensure intermediaries are meeting minimum standards
    • Intermediaries are worried about their exposure to fraud
    • There is a fear that as the self-certification mortgage market becomes increasingly mainstream fraud will increase
    • The self-certification mortgage market is more susceptible to a downturn in economic conditions than the mainstream mortgage market
    • High levels of consumer indebtedness may impact on the self-certification mortgage market
    • Conclusions
    • The competitive landscape of the self-certification mortgage market
    • There are two major types of player in the self-certification mortgage market
    • Specialist lenders are the leaders in the self-certification mortgage market
    • Self-certification is often associated with non-standard mortgage lending
    • 22 of the 38 of lenders operating in the self-certification mortgage sector are specialist lenders
    • HBOS is the leading player in the self-certification mortgage market
    • A strong intermediary relationship is behind BM Solutions' success
    • While specialist players dominate this niche sector, mainstream players are increasingly competing in the self-certification mortgage market via fast-track lending
    • The self-certification mortgage market is becoming more competitive
    • A more competitive market has led to self-certification mortgage rates falling despite repeated base rate increases over the last two years
    • Lenders are becoming more flexible with LTV ratios
    • Specialist lenders have had to become more flexible with the LTVs they offer partly because mainstream lenders offering fast-track mortgages are encroaching on the self-certification mortgage market
    • Lenders are now offering self-certification mortgages in a variety of mortgage markets
    • Intermediaries are crucial to the development of the self-certification mortgage market
    • The majority of intermediaries advise on the self-certification mortgage market
    • Most self-certification mortgage business comes via intermediaries
    • Intermediaries typically saw their self-certification mortgage business grow or remain stable in 2006
    • Furthermore, the majority of intermediaries believe that the self-certification mortgage market will continue to grow
    • It is therefore important that lenders consider intermediaries when developing their self-certification offerings
    • Lenders should provide a good service and quality products to attract intermediaries
    • The majority of brokers try to obtain a fast-track mortgage for their client before they suggest a self-certification mortgage
    • Indeed, a large proportion of intermediary business comes from fast-track lending
    • Generally intermediaries do not consider fast-track lending to be a negative influence on the self-certification mortgage market
    • Conclusions
    • Forecasting the self-certification mortgage market
    • Datamonitor's forecasting model assesses the factors that have impacted and will impact the self-certification mortgage market
    • Macroeconomic factors and factors specific to the self-certification mortgage market are included in the forecasting model
    • Under the Datamonitor's View scenario, gross advances for self-certification mortgages continue to grow strongly and outperform income verified mortgages
    • Self-certification mortgage gross lending will grow at an annual average rate of 8.5 per cent from 2007 to 2011 to reach 27.3 billion in 2011
    • Under the Datamonitor's View scenario, the self-certification mortgage market gains share over the income-verified lending sector
    • Under the Best Case scenario, the growth of the self-certification mortgage market progresses rapidly
    • Self-certification mortgage gross lending will progress at more than three times the rate of gross lending in the income verified mortgage market
    • Under the Best Case scenario, the self-certification mortgage market will gain 3.2 percentage points in market share
    • Under the Worst Case scenario, the self-certification mortgage market will also expand but growth will be slower
    • The self-certification mortgage market will fair marginally better than the income verified mortgage market under the Worse Case scenario
    • In the Worst Case scenario, the self-certification mortgage market share remains stable at around 5.0 per cent
    • Conclusions
  • Appendix
    • Supplementary data
    • Definitions
    • Bank of England base rate
    • Buy-to-let
    • CAGR
    • Gross advances
    • Loan-to-value (LTV)
    • Non-standard customer
    • Remortgaging
    • Right to buy
    • Self-certification mortgage
    • Methodology
    • Further reading
    • Ask the analyst
    • Datamonitor consulting
    • Disclaimer
  • List Of Tables
    • Table 1: Market share of self-certification mortgages, 2002-2006
    • Table 2: Lenders offering self-certification mortgages, March 2007
    • Table 3: Average self-certification interest rate, March 2001 - March 2007
    • Table 4: Niche mortgage markets where self-certification is available as an option, April 2007
    • Table 5: Self-certification and income verified market shares under the Datamonitor's View scenario, 2006-2011f
    • Table 6: Self-certification and income verified market shares under the Best Case scenario, 2006-2011f
    • Table 7: Self-certification and income verified market shares under the Worst Case scenario, 2006-2011f
    • Table 8: Gross advances under the self-certification mortgage market split by self-certification and income verified lending, 2002-2006
    • Table 9: Proportion of self-certification mortgage market split by employment classification, 2002-2006
    • Table 10: Indexed gross advances of self-certification, income verified and total mortgage market, 2002-2006
    • Table 11: Factors affecting intermediaries' choice of self-certification lender, 2007
    • Table 12: Intermediaries' views on the effect of fast-track lending on the self-certification mortgage market, 2007
    • Table 13: Forecast gross advances under self-certification lending as compared to the total mortgage market, 2007f-2011f
  • List Of Figures
    • Figure 1: The structure of the self-certification mortgage market, July 2005
    • Figure 2: The self-certification mortgage market was worth 17.3 billion in 2006, 2002-2006
    • Figure 3: The average interest rate on self-certification mortgages has become more attractive, March 2001 - March 2007
    • Figure 4: In the Datamonitor's View scenario, the self-certification mortgage market will continue to outperform the income verified mortgage sector, 2006-2011f
    • Figure 5: The self-certification mortgage market was worth 17.3 billion in 2006, 2002-2006
    • Figure 6: The self-certification mortgage market grew strongly in 2006 after stalling in 2005, 2003-2006
    • Figure 7: The majority of self-certification gross lending was accounted for by the self-employed, 2002-2006
    • Figure 8: The majority of self-certification mortgage customers are self-employed, 2007
    • Figure 9: The growth of the self-certification mortgage market was significantly faster than the growth of the income verified mortgage market, 2002-2006
    • Figure 10: Intermediaries still consider income fraud to still be an issue in the self-certification mortgage market, 2007
    • Figure 11: A fifth of self-certification mortgages are taken by first-time-buyers, 2007
    • Figure 12: Two-thirds of intermediaries think that recent rises in base rate will have little effect on the self-certification mortgage market, 2007
    • Figure 13: The structure of the self-certification mortgage market, April 2007
    • Figure 14: HBOS is the leading lender in the self-certification mortgage market, 2006
    • Figure 15: The average interest rate on self-certification mortgages has become more attractive, March 2001 - March 2007
    • Figure 16: The majority of intermediaries advise on mortgages on a self-certification basis, 2006
    • Figure 17: The intermediary channel generated 15.6 billion in new lending in 2006
    • Figure 18: In 2006, self-certification mortgage business for intermediaries was typically stable or saw slight growth, 2007
    • Figure 19: The majority of intermediaries foresee steady growth in the self-certification mortgage market, 2007
    • Figure 20: Providing a good quality of service and competitively priced products is the best way for lenders to attract intermediaries, 2007
    • Figure 21: A large part of intermediaries business comes from fast-track lending, 2007
    • Figure 22: On the whole intermediaries think that fast-track lending does not have a negative influence on the self-certification mortgage market, 2007
    • Figure 23: In the Datamonitor's View scenario, the self-certification mortgage market will continue to outperform the income verified mortgage sector, 2006-2011f
    • Figure 24: In the Best Case scenario, gross advances for self-certification mortgages will grow at an annual average rate of 13.2 per cent, 2006-2011f
    • Figure 25: In the Worst Case scenario, the self-certification mortgage market will fare better than the income verified mortgage market, 2006-2011f
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