‘Dramatic Changes’

Council of Mortgage Lenders (CML) data shows that six mortgage lenders increased their hold on the new homes market in the UK in 2008.

The top six lenders, led by Lloyds, accounted for a total of 78% of all new loans last year compared to 72% the year previous.

The CML says that the credit crunch, which began back in 2007, had dried up the supply of mortgage finance.

Last year overall, lending fell by 28% and specialist lenders were driven out completely.

The CML explains: “The lending community itself has undergone… dramatic changes.

“With so many lenders either merging or ceasing lending, this year’s largest lenders’ table has changed more than in other years.”

What Factors Are Involved?

After Northern Rocks’ insolvency back in 2007, they dropped out of the top-ten mortgage lenders – a key factor changing the world of mortgage lending. Northern Rock lent only 1.1% of new mortgage funds in 2008.

However, the CML believes another factor is that specialist lenders (those that didn’t depend on savers’ money to finance to finance their lending) had fallen from an already small 7% share of lending, to just 2%.

The CML commented that: “In effect, many specialist lenders ceased new lending in 2008.”

Mortgage broker for John Charcol, Ray Boulger, says that borrowers are now receiving the worst of all worlds: “If you have fewer lenders you have less competition.

“Those lenders still in the market have only limited amounts to lend, so they aren’t competing hard with each other if borrowers have less than 25% deposit.”

Mergers Saving The Day

Lloyds was the biggest mortgage lender in 2008, followed by Santander, Nationwide, Barclays, RBS and HSBC.

The drying up of the wholesale banking market has also affected banks and building societies badly.

Housing prices fell, which then undermined the value of past loans, and the recession also led to many borrowers defaulting on their mortgage.

This all led to lots of take-overs and mergers, with the more financially unstable companies having to be rescued by larger operators. For example, Lloyds TSB took over HBOS, thus combining the first and third largest lenders in Britain.

Santander, a Spanish bank, took over Alliance & Leicester, after previously taking over Abbey. And Nationwide building society took over Cheshire and Derbyshire building societies. Other building societies have also merged in order to survive the recession.

“We may not have seen the end of the current wave of consolidation. So, next year’s table is likely to look different again, with more new names and even larger market share in the hands of the larger firms,” warns the CML.

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