European mortgage markets: what can we learn? - Hypsotech ...

The UK
mortgage market
In Europe, the UK mortgage market is often used as a reference because of the
sheer size and maturity of this market, reflected by a large variety of products
available. With a total value of residential loans of €1,243bn in 2004 the UK
mortgage market is the largest in Europe. Further, the number of competitors in
this market is large, albeit the concentration is fairly high: in 2001 the level of
concentration in the UK market was around 60%.
Nevertheless, the level of competition is raised in the UK by the significant pressure that is executed
by the smaller players. Therefore, the players in this market adopt various different strategies
in order to compete more effectively; some choose to grow bigger by merging or entering
joint ventures whilst other players opt for specializing in some activities and outsourcing noncore
activities. The level of competition in the UK has not only led the mortgage interest rates
to decrease but also it has increased the availability of mortgage products: in the UK there are
specialist lenders that supply mortgage loans to the non-conforming and sub-prime market segment
as well. In general it can be stated that high risk mortgage products are widely available in
the UK. Besides specialist lenders, high street lenders, building societies and retail banks are
important players in this market.
The UK non-conforming market:
Self-certified
borrowers;
uncertain income
history
Sub-prime
borrowers;
blemished credit
history
Figure 6: the borrower types served in the UK besides the prime class.
Buy-to-Let (BTL)
and Right-to-Buy
(RTB) borrowers;
higher potential
risk related
to collateral
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