Published: 8 September 2010 | Author: Bernard Clarke
The publication today of our list of the top 30 mortgage lenders in 2009 should be viewed in the context of broader developments affecting the UK mortgage market which, in the aftermath of the financial crisis, has contracted significantly and re-structured substantially.
Gross mortgage lending in 2009 declined by 43% to £144 billion. This reduction was even more pronounced than in 2008, when the total fell by 30%, from £363 billion to £254 billion. The overall result is that lending in 2009 totalled significantly less than half the amount of only two years earlier - a stark reflection of the scale of change over a very short period. The impact of this is reflected in changes to the list of the largest lenders in 2009, compared with recent years.
Lending volumes, both for individual lenders and for the market as a whole, have been affected by a number of significant developments since the summer of 2007. These include the economic recession and its effect on losses from past lending business, a reduced appetite for risk among firms, and changes in consumer attitudes to borrowing. The appetite and capacity to borrow – either for house purchase or to remortgage – have been dampened by reduced confidence during the economic downturn, a squeeze on personal disposable incomes and uncertainty about future job prospects.
There has also been a longer term, structural shift in funding markets in the UK, which has had a dramatic impact on lenders’ business models. An overall shortage of funding – and a much greater reliance on retail deposits following the near-collapse of wholesale funding markets – has had a major impact on non-deposit takers, which have relied historically on securitisation.
Greater pressure to obtain and hold retail deposits has also led to a cautious attitude by smaller deposit takers, particularly in the building society sector, so that typically they are reluctant to lend until and unless inflows of retail deposits are assured.
The impact of all this has constrained diversity and competition in the market, and the supply of lending overall. This is unlikely to change soon, and recent trends may be reinforced by the ongoing regulatory reforms being implemented by the Financial Services Authority as it continues to work on its mortgage market review.
New regulatory requirements on liquidity and capital, and a more intensive supervisory approach to risk issues, have further restricted the capacity and willingness of firms to lend by reinforcing market pressures to hold more capital, and more funds in a liquid form, and to pursue risk-averse lending strategies.
In 2009, therefore, firms were operating in a rationed market, with much lending activity driven by a small number of large banks, some of which were wholly or partly state-owned. Building societies, with a few notable exceptions, were largely hibernating, and non-banks were often comatose – unable to write new business without access to new sources of retail funding. These conditions continue to afflict the mortgage market today and will not change soon, as highlighted in our recent report on the outlook for mortgage funding.
Chart One: Percentage of mortgage lending by the five largest firms
Chart One shows how the concentration of gross lending among the largest firms intensified in 2009. The five largest lenders accounted for 82% of lending activity during the year, reinforcing a trend caused by the credit crunch, with the percentage having increased from 64% in 2007. This is unlikely to reverse significantly in the near future, and further market consolidation may ensure the current pattern persists in the long term.
Largest mortgage lenders by balances outstanding
Largest mortgage lenders by gross lending