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Property subsidence

Remortages are und^_erpinning new business and will become increas^_ingly

important as the online challenge grows. The value of independent advice is

still recognised but IFAs will have
to work harder to maintain demand.

Online competition threatens to cut profit margins further. The growing

emph^_asis on remortages is combining with a greater preference for

non-branch distribution channels, according to research analyst Mintel.

“This is among those consumers who already have a mortgage, and

specifically who have already remortgaged,” it says.

Thirty per cent of consumers who have already chan^_ged their

mortgage
and are thinking of changing again would use the phone compared

with only 7 per cent overall.

According to a recent Mintel survey, 93 per cent of consumers agreed

financial advice was important when arranging a mortgage. There was little

variation from this level of agreement by age or socio-economic group.

Mintel estimates that remortgaging acc^_ounts for 25 per cent of approvals

made by banks, representing 15.9bn of bank approvals.

The trends in remortgaging activity are upwards and are, critically,

accounting for an increased percentage of bank approvals. This suggests

that remortgaging activity may well be driving a significant part of the

mortgage market and is likely to increase in the future.

Around 29 per cent of consumers have already remortgaged with another

provider, with a further 9 per cent considering remortgaging in the next 12

months. Remortgages tend to be congregated around the 35-54 age group and

higher socio-economic groups.

Competition for staff and new business has had its effect on lenders.

Standard Life Bank&#39s former managing director Jim Spowart recently left to

set up Halifax&#39s rival internet bank Intelligent Finance.

Standard Life Bank managing director Neil Ross points out that, one year

ago, there were only three flexible mortgage products on the market. There

are now over 30.

Examples of investment and online expansion are numerous. The Mortgage

Operation is merging with its German equivalent, Haus & Capital, after

attracting 5m in venture capital to spend on UK expansion. It aims to

increase the number of brokers regularly using its online mortgage broking

system, TMOS, to 10,000 from 7,500. Prudential&#39s online operation Egg has

inv^_ested 15m in IFA electronic mortgage
trading platform IFonline.

Mintel says: “It seems that the pricing
of mortgage products is

becoming closer, with significantly less difference between the pricing by

different organisations being noted. The long-term interest-rate

differential between banks and building societies is 0.24 per cent and this

has recently reduced to some 0.13 per cent with the latest interest rate

reductions.”

Mortgages have traditio^_nally represen^_ted a highly profitable product

for finan-
cial services providers. which has led to
an increasing

number of providers entering the market. But with the subsequent rise in

competition, profit margins have been squeezed and mortgages have

inc^_reasingly had to be sold in conjunction with other
products and

services such as insurance
to generate reasonable profit levels.

The UK mortgage market is a mature financial services market. The

penetration of mortgages within the consumer base has reached a plateau at

around 40 per cent of the adult population with little sign of an

increase.

New business levels, in terms of new mortgages arr^_anged within the last

12 months also remain stable at around 4 per cent of the consumer base, as

with the outright ownership of property, at a consistent 26 per cent,

according to Mintel.

Given this stable level, the mortgage market is dependent upon other

factors for new business growth.

The UK is undergoing significant demographic change which will affect the

mar^_ket. Although the overall population is increasing, the younger age

groups are reducing in number.

Critically, the 25-34 age group, where the maj^_ority of first-time buyers

originate, is forecast to shrink by 11.2 per cent between 1999 and 2003

from 8.9 million to 7.9 million.

This will affect the number of first-time buyers entering the market and

the arrangement of new mortgages.

Mintel warns that the prop^_erty market is suffering a downturn. Although

property prices are increasing, the number of property transactions fell by

8.6 per cent in 1998 from 1997.

This slowdown has been primarily caused by a supply-side lag within the

prop-
erty market with a lack of suitable properties becoming available

for sale.

While the removal of Miras is likely only to have a marginal effect upon

the market, as increasing personal disposable income, low interest rates

and a greater level of competition within the market will more than

compensate its removal. However, the
ending of Miras will see a subsidy

of
2.7bn removed from the market.

PDI, an effective measure of consumer affluence, is rising and is

forecast, with developments within the economy, to increase strongly in the

future. PDI per capita stands at 7,643 and is forecast to grow to 8,287 by

2003. This implies that consumers will be able take on increased levels of

debt.

The market, while maintaining a relatively stable position, has had a

number of new players enter the market in recent years, bringing strong

price competition. The market is increasingly being characterised by

incentives such as fixed rates, capped rates, discounted variable rates and

cashbacks, as providers chase a relatively static number of borr^_owers and

potential borrowers.

Remortgaging activity as a result of this competition has increased

dramatically as consumers change lender to benefit from a better, usually

incentivised, deal. Remortgaging is, to a large extent, maintaining and

driving mortgage volumes.

The overall mortgage book within the UK stands at 457.9bn, an increase of

6 per cent from the previous year.

But while 89.5bn may be added to this total in terms of gross advances,

there is an increased rate of the redemption/leakage/remortgaging of debt,

with 63.1bn acc^_ounted for in this way in 1998, an increase of 14 per cent

over 1997.

Despite the recent wave of adverse publicity, twice as many consumers have

an endowment mortgage (20 per cent) as a repayment mortgage (10 per cent).

However, within the younger age groups there is a greater penetration of

repayment mortgages than endowment mortgages.

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