Mortgage market remains dominated by prime lending

For all the recent focus on sub-prime mortgages in the US, the UK mortgage market continues to be dominated by prime and self-cert residential lending – and this applies to loans generated both via the intermediary sector and direct to consumer. IMLA, the Intermediary Mortgage Lenders Association, has collated estimates of 2007 mortgage volumes split between direct and intermediary business.

Peter Williams, IMLA’s executive director, comments: “Specialist, intermediary lenders are often associated with sub-prime, buy-to-let and other forms of non-conforming lending, but we mustn’t overlook the fact that significantly more prime business is handled through intermediaries than direct - £140 billion for intermediaries compared with £115 billion direct. Even so, non-conforming business does represent around 30% of the whole market and as much as 40% of intermediary business.”

“It’s also important to realise that non-conforming lending is not all sub-prime. Buy-to-let statistically has a lower risk profile than prime lending, and indeed most self-cert is for prime borrowers who are for one reason or another are unable to provide full documentary evidence of their income and financial circumstances.”

“What is clear is that the intermediary sector has played an important role in providing mortgage products for customers with unusual requirements and circumstances, reflecting the dynamism and flexibility of the UK mortgage market. Well over 90% of non-conforming business is handled by intermediary lenders.”

Comparing the split of different types of mortgage business in 2005 and 2007, there was strong growth in the overall market, but little movement in the size of the self cert and sub-prime markets. At the same time, there was substantial growth in prime lending and in buy-to-let. As a result, the market share of self cert and sub-prime activity declined slightly, while equity release remains a very small proportion of the market (well under 1%). The UK sub prime market at 6% (8% with some sub prime self cert mortgages and 100% mortgages added in) contrasts with 20% in the US.

Peter Williams concludes: “Intermediaries handled in excess of £230 billion in 2007, according to our calculations. Even in a slower market, based on projections for the size of the market in 2008, they will still be looking at substantial levels of activity in the current year. With an intensification of competition between channels and some specialist markets contracting, there should be some good deals for the consumer this year.”