Mortgage market to fall

The mortgage market will fall ten per cent in the next three years, Datamonitor has predicted

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Wednesday, 06, Apr 2005 05:20

Over the next three years mortgage lending in the UK will fall by ten per cent, according to market analyst Datamonitor.

It will be caused by ongoing stagnation in the housing market and property values, the report finds. Datamonitor expects to see a 15 per cent drop in the number of people borrowing money for house purchases by 2007.

Additionally, it predicts that a stable base rate environment from the Bank of England will limit people's desires to re-mortgage their existing properties.

In the last six months the average price of a house in the UK has remained almost static, according to figures released in the last few days by leading mortgage lenders Nationwide and Halifax. Over the same period the base rate of borrowing in the UK has been kept on hold at 4.75 per cent by the Bank of England.

And this could become good news for consumers as banks compete to win a share of an ever-decreasing market.

"Lenders will need to devise cost effective strategies in the light of increasingly wafer thin margins and inject a more innovative approach in order to secure a share of the market," commented Edward Ripley, financial services analyst at Datamonitor and author of the report.

Currently most lenders compete on short-term fixed-rate and discounted deals to attract customers, with the assumption being they will stay on after the period of their fix or discount ends.

However, this business model is being challenged as consumers start switching mortgages more often to avoid paying the lender's more expensive standard variable rate.

Mori FS data has shown the average length of time mortgage holders aged 35 to 44 stay with a lender has fallen from 7.8 years in 1997 to 5.4 years 2004.

Datamonitor predicts that this will lead to an increasing number of mortgage lenders following Nationwide's lead and putting more of the emphasis on keeping existing customers happy.

"Some lenders will turn their backs on short term price-led acquisition strategies and serial remortgagers and develop selective acquisition processes to prevent future churn," Mr Ripley predicted.