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Introduction

The UK mortgage market continued to suffer from the after effects of the credit crunch in 2010. A lack of funding restricted the ability of providers to increase lending, and demand was adversely affected low consumer confidence. Matters are unlikely to improve in 2011, and the best that can be hoped for is a slow and gradual recovery.

Features and benefits

* Summarizes the main macroeconomic and regulatory developments affecting the mortgage market.
* Assesses the impact of interest rate movements, funding constraints, increased regulation and other factors upon the mortgage market.
* Sets out Datamonitor’s gross lending forecasts for the period 2011-2015.

Highlights

Remortgaging activity was slow throughout 2010, as borrowers remained inclined to remain on low standard variable rates. However, renewed speculation about possible rises in the base rate over the next few months could help to fuel a partial recovery in this market.
House prices will, at best, remain static in 2011, as consumer demand for housing falls in response to higher taxation, spending cuts and decreasing real incomes. This will limit the amount of equity many homeowners have in their properties, reducing their ability to remortgage or move home. Providers may also be less inclined to lend as a result
Funding remains problematic. New securitizations are scarce, and are not keeping pace with redemptions. Lenders will also have to deal with the winding down of government support through the Special Liquidity Scheme and Credit Guarantee Scheme. Forthcoming Basel guidelines will severely restrict the ability of banks to lend at high loan-to-values.

Your key questions answered

* Understand the key factors that will drive the mortgage market in 2011 and beyond.
* Assess the prospects for an increase in lending activity in 2011.
* Use Datamonitor’s forecasts to help inform your future plans.

Table of Contents :
DATAMONITOR VIEW
Catalyst
Summary
ANALYSIS
forecasts a lean market for gross lending over the next five years
Gross lending will rise to just £200bn by 2015
Under the optimistic scenario, gross lending will reach £220bn in 2015
The pessimistic forecast sees gross lending growing to £180bn by 2015
Business activity was sluggish throughout 2010
Gross lending in 2010 did not improve on the levels seen in 2009
The fragile state of the UK economy has held back consumer demand for mortgages
Remortgaging levels remained depressed throughout 2010
Mortgage interest rates barely shifted in 2010
House purchase activity appears to have bottomed out
Credit availability has stabilized, but not yet begun to recover
The post-crash recovery in house prices ended in early 2010
Arrears and possessions declined in 2010
Uncertainty surrounded progress on the Mortgage Market Review in 2010
Prospects for growth in 2011 are subdued
Mortgage lending got off to a slow start in 2011
expects the base rate to end the year at 1%
House prices are likely to remain flat at best in 2011
Funding issues will become more pressing as the year progresses
Poor availability of high LTV mortgages will continue to hinder first-time buyers
Arrears and possessions may rise slightly in 2011
Buy-to-let is the only major sector of the market that will see significant growth in 2011
APPENDIX
Supplementary data
Definitions
Bank of England base rate
CAGR
Gross advances
Remortgaging
RMBS
Methodology
Forecasting methodology
Further reading
Ask the analyst
consulting
Disclaimer

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