Brexit woes for UK mortgage market as lending slows

Brexit woes for UK mortgage market as lending slows, says GlobalData

An analysis of the UK mortgage market by GlobalData has confirmed that the market started to show signs of slowing down in 2016. Faced by the headwinds of Brexit and a slowing economy, GlobalData’s Global Retail Banking Analytics tool has revealed that while gross advances in H1 2016 were £22bn higher than during the same period in 2015, lending in H2 was flat year-on-year.

Whilst GlobalData expect mortgage lending will continue to increase over the next few years, the company forecasts that gross advances will only reach £310.4bn by 2017 representing a significantly slower rate of growth than the market has enjoyed in recent years.

Daoud Fakhri, Principal Analyst for Retail Banking at GlobalData commented: ‘External forces will continue to mitigate against the UK mortgage market in 2017 and beyond, with political uncertainty and worsening macroeconomic conditions expected to bear down on consumer demand.’

GlobalData’s Global Retail Banking Analytics tool also shows that Lloyds Banking Group remains the UK’s dominant mortgage lender, accounting for around a quarter of outstanding mortgage debt in 2016. This is largely due to its Halifax brand, which retains a strong degree of customer loyalty and continues to benefit from high levels of recognition and trust.

An analysis of financial performance reveals that some banks have particularly high costs relative to their income. Metro Bank has a high cost-to-income ratio, but this is for positive reasons as Fakhri explains: “Metro Bank is in the midst of a large branch expansion program, which has resulted in considerable capital expenditure. However, as its revenues are growing quickly, its cost-to-income ratio is improving, and is expected to fall from 106% in 2016 to just 60% by 2020.”

Fakhri continued: “In complete contrast, The Co-operative Bank continues to endure a high cost-to-income ratio because of poor decisions made years earlier, principally its purchase of Britannia. It has made substantial losses over the last five years, and hence has seen a negative return on assets. However, the business remains optimistic that its Strategic Plan for 2017–21 will return it to profitability.”