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FACTSHEET 2012

UNITED KINGDOM

MARCH 2012

STRUCTURE OF HOUSING INDUSTRY

GOVERNMENT HOUSING POLICY Social Housing In November 2010 the Government announced plans for reform of the social housing system. This included proposals to: p rovide social landlords with more flexibility on the types of tenancies they can grant, whilst protecting the rights of existing tenants; g ive local authorities back the power to better manage their housing waiting list;  ake it easier for social tenants to move within m the social sector through the introduction of an integrated home swap scheme; a llow local authorities to fully discharge a duty to secure accommodation by arranging an offer of suitable accommodation in the private rented sector, without requiring the applicant’s consent.

Taxation The main tax on residential property transactions is Stamp Duty Land Tax, which levies a rate of tax between 0% and 5% depending upon the property’s value on the buyer of a property. In September 2008, as part of a wide range of measures to address housing market instability, the government announced a temporary raising of the nil-rate Stamp Duty threshold. This meant that properties valued at up to GBP 175,000 (EUR 204,136) were exempt from stamp duty. In March 2010 first-time buyers became temporarily except from paying stamp duty on properties valued up to GBP 250,000 (EUR 291,623). A precise definition of first-time buyers has been used that excludes anyone who has ever owned property anywhere in the world. This concession is due to end in March 2012. Main residential property is exempt from Capital Gains taxation. The value of estates are exempt from Inheritance Tax up to a certain threshold, but the failure to index this in line with house prices means that a growing proportion of estates that include residential property are becoming subject to Inheritance Tax.

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Subsidies There has been no general assis¬tance towards the cost of home ownership since the withdrawal of mortgage interest relief and the Mortgage Interest Relief At Source (MIRAS) scheme from 6 April 2000. There is some tar¬geted assistance through low cost home ownership (LCHO) schemes. There are two main types of LCHO – shared ownership and equity loan models. With shared ownership a supplier, usually a housing association, builds a new unit and a purchaser part owns and part rents it from the supplier. Under the equity loan model some combination of public and private sector funding is used for a loan to buy a proportion of the property and the borrower obtains a mortgage for the remainder, with the option to pay back the equity loan at a later stage. In October 2011 the Government announced plans to consult on the future of the Right To Buy (RTB) scheme which gives social housing tenants the opportunity to buy their home at a discounted price. Its intention is to substantially increase existing price caps, effectively doubling the average discount received by buyers in England. However, government recognises that larger discounts need to be balanced with its need to replace every additional home sold under RTB with a new home for Affordable Rent. The new Housing Strategy published in November 2011 outlined a New Build mortgage indemnity scheme to assist buyers with a small deposit (5%). House builders will deposit 3.5% of the sale price in the indemnity fund for each home sold through the scheme, and the government will provide additional security for the loan in the form of a guarantee of a further 5.5% of the sale price. In the event of repossession and sale at a shortfall, the lender will be able to recover a portion of losses on mortgages from the fund to the maximum covered by the scheme. The indemnity scheme only protects lenders. Borrowers will still be responsible for their losses in the normal way.

Study on the Cost of Housing in Europe CML Policy Issues, Social housing funding and regulation in England, 15 April 2011 at www.cml.org.uk

HM Revenue and Custom (HMRC) www.hmrc.gov.uk

CML Policy Issues, Low Cost Home ownership, 28 October 2011 at www.cml.org.uk Department for Communities and Local Government (DCLG) www.communities.gov.uk

Department for Communities and Local Government (DCLG) www.communities.gov.uk Structural Factors in the EU Housing markets, March 2003 at www.ecb.int

FACTSHEET 2012 UNITED KINGDOM /1


HOUSING STOCK and TENURE Trends Owner occupation rates have increased substantially over the last 30 years, from around 50% of households at the beginning of the 1970s, to almost 70% in 2005. There has since been a slight reversal of this trend, possibly a result of the deteriorating affordability of home ownership and the growth in the private rental sector.

Data Total Dwelling Stock Dwelling stock by tenure Number of households by tenure Owner occupation rate

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Department for Communities and Local Government (DCLG) http://www.communities.gov.uk

DEMOGRAPHY Trends

Data

Owner occupation rates have increased substantially over the last 30 years, from around 50% of households at the beginning of the 1970s, to almost 70% in 2005. There has since been a slight reversal of this trend, possibly a result of the deteriorating affordability of home ownership and the growth in the private rental sector.

Population estimates Population projections Household estimates Household projections Dwelling stock by tenure

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Hypostat Tables

National Links External Links

Office for National Statistics www.statistics.gov.uk Department for Communities and Local Government (DCLG) www.communities.gov.uk Population and Social Condition at www.epp.eurostat.ec.europa.eu

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HOUSING SUPPLY Trends

Data

Private house builders provide the vast majority of new housing. Relative to the size of the housing stock, new build is low in compa¬rison to other EU countries. Concern about the poor responsiveness of housing supply prompted the Barker Review, which includes recommendations to reform the planning regime.

Housing Starts (by tenure) Housing Completions (by tenure) Net Additions to the Housing Stock (excluding demolitions)

Since the economic downturn new housing supply has fallen further, in 2010/11 121,200 additional homes were built, compared to 207,370 at the peak in 2007/08. In April 2011 the Government launched the New Homes Bonus with the aim of increasing housing supply. For each new home (either newly built or brought back to use) in a local authority, the Government will match fund the additional council tax (a tax paid by households to local authorities to pay for local services) raised. The Governments Housing Strategy (published in November 2011) sets out the Government’s ambition to increase house building. Through a GBP 400 million (EUR 467 million) fund available to developers to help kick-start new developments; the release of public sector land and Government support of an indemnity scheme that will allow higher LTV lending on new build properties.

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National Links

Hypostat Tables

Department for Communities and Local Government (DCLG) www.communities.gov.uk

Department for Communities and Local Government (DCLG) www.communities.gov.uk

CML Policy Circulars, Laying the Foundations: A Housing Strategy for England, 21 November 2011 at www.cml.org.uk

HOUSE PRICES Trends UK house prices are strongly cyclical. Te¬nure preferences, demographic pressures and low rates of new housing supply contri¬bute to higher house prices in real terms over the longer-term. Since 1975 house prices have risen at an annual rate of 2.9% in real terms.

Data Annual Percentage Change in Nominal House Prices There are several sources of national house price information. The main sources are: DCLG, Land registry, Hali¬fax, Nationwide.

Since the onset of the financial crisis in 2008 the housing market has been much weaker. House prices were falling until mid-2009 but have since stabilised with some periods of modest growth and some periods of small falls, but the current trend is modestly downwards.

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Hypostat Tables Quarterly Review Statistics

National Links

Department for Communities and Local Government (DCLG) www.communities.gov.uk Nationwide Building Societies at www.nationwide.co.uk Halifax HPI at www.lloydsbankinggroup.com HM Land Registry at www.landregistry.gov.uk

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TRANSACTIONS Transaction Costs The main transaction cost in the UK is stamp duty land tax. This is levied with a slab structure, meaning that if a property exceeds the threshold, stamp duty is levied on the whole value of the property. This has the effect of the “bunching� of house prices, particularly around the threshold values.

Trends Transactions in the UK have been considerably below trend for the past 3 years.

Data Number of Transactions There are two main sources of transactions data: HM Revenue & Customs and HM Land Registry. HMRC data are for the UK but only the data go back only as far as 2006. HMLR gives a longer time series but only covers England and Wales.

EMF Links

National Links

Study on Cost of Housing in Europe

Hypostat Tables HM Revenue and Customs at http://www.hmrc.gov.uk/stats/survey_of_prop/ HM Land Registry at http://www.landreg.gov.uk/

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STRUCTURE OF MORTGAGE MARKET

SIZE AND GROWTH Trends and Interest Rates Outstanding mortgages: The UK is the largest residential mortgage market in the EU. Residential mortgages account over GBP 1.2 trillion (EUR 1.4 trillion), the vast majority of personal sector debt. Numerous studies, including a Mercer Oliver Wyman Report and the Miles Review, testify to the competitive, innovative and relatively complete nature of mortgage lending in the UK. However in the current adverse market conditions households are looking to rebuild their balance sheets. Consequently growth in balances outstanding has slowed dramatically and the number of mortgages outstanding has been declining for the last 3 years. Even with a larger fall in new lending in the aftermath of the financial crisis, the Buy-to-Let (BTL) sector has bucked this trend, the number of BTL mortgages outstanding has continued to increase.

Data Total Outstanding Residential Loans Gross lending Net lending Representative Interest Rates on New Mortgage Loans

Gross and net lending: In the early 2000s activity levels were inflated by high levels of house purchase, remortgaging and equity withdrawal on the back of rapidly rising house prices. Before the financial crisis strong appetite for remortgaging has meant that since 2003 house purchase accounted for less than half of total gross lending. Remortgage activity dropped significantly from 2009 when the reduction in the official Bank rate meant that borrowers coming to the end of their initial incentive rate faced little incentive to remortgage due to favourable reversion rates. With the market in decline both gross and net lending are still significantly down on the peak levels seen in 2007. Gross lending has levelled off at around 40% of the peak in 2007. Interest Rates: Mortgage interest rates in the 2000s were comparatively low, reflecting a low inflation environment and favourable housing market conditions. In 2007 the funding crisis led to a dramatic increase in the spread between the official Bank of England rate and LIBOR, which has significantly increased the effective cost to lenders of funding mortgage credit. There was a significant upward pressure on mortgage rates which greatly offset the significant reductions seen in the official Bank rate in the same period. The Bank rate has been held at 0.5% since March 2009 and mortgage rates have been trending downwards since the middle of 2009.

EMF Links

Hypostat Tables Quarterly Review Statistics

National Links

Bank of England at http://www.bankofengland.co.uk/statistics/index.htm CML at www.cml.org.uk

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INDUSTRY STRUCTURE Type of Lenders There are a wide range of banks, building societies and other specialist lenders (OSLs) in the UK morÂŹtgage market. In 2008 the credit crisis changed the market landscape dramatically. The year saw a number of large lenders undergo mergers, and by the end of the year a number of major British banks had been taken into part or full public ownership as emergency measures. With the securitisation market still closed and other funding channels severely restricted, most of the non-deposit taking specialist lenders ceased accepting new business, and in some cases ceased operating altogether.

Top 5 Lenders Based on 2010 mortgage balan­ces outstanding: Lloyds Banking Group (27.5%) Santander (13.9%) Nationwide BS (10.1%) Barclays (8.2%) T he Royal Bank of Scotland (7.7%)

Regulation Since October 2004 most mortgages have been subject to statutory regulation by the Financial Services Authority (FSA). The notable exceptions to this are buy-to-let and second or subsequent charge mortgages.

Distribution Channels Sales by intermediaries were very popular before the crisis when around two-thirds of loans advanced were made via intermediaries. Selling via intermediaries is now less common, around half of mortgage advances.

The FSA is currently undergoing a Mortgage Market Review (MMR) with the aim of delivering a sustainable market for all participants and is flexible for consumers.

At the end of Q3 2011 of total lending secured on dwellings outstanding, 69% was with non-mutual banks, 16% with mutual banks and 15% with OSLs, OSLs have lost around half of their market share since the peak at the end of 2008 when 35% loans secured on dwellings were held by OSLs.

National Links

CML UK Largest Lenders Table (MM10) at www.cml.org.uk

CML, Policy, Policy Issues, Mortgage Market Review www.cml.org.uk

CML Statistics www.cml.org.uk Financial Services Authority www.fsa.gov.uk

Financial Services Authority www.fsa.gov.uk

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PRODUCT TYPES Mortgage Products

A full range of mortgage products serving a diversity of borrowers have been available, including impaired credit, buy-to-let and equity release products.

Interest-Rate Types as a Percentage of Mortgage Lending Market Short-term fixed rates products have been the most popular products in recent years – in particular for 2 or 3 years.

Breakdown by Loan Maturity Type

The majority of loans are taken out on a 25-30 year term.

In the continuing market crisis the range of mortgages available, whilst still comparatively extensive, has dramatically reduced compared to 2007 levels. The range of specialist products, in particular buy-to-let and impaired credit mortgages, has reduced most significantly, with the primarily non-deposit-taking specialist lenders most severely affected by the credit crunch. The availability of higher LTV products (above 90% LTV) has also diminished – some products are available but the higher level of risk of loss and higher capital costs are reflected in the pricing of these products. More recently there has been some growth in the number of Buy-to-Let (BTL) products available – there are now around 500 BTL products available, compared to a low of around 200 products in 2009.

National Links

Moneyfacts www.moneyfacts.co.uk

CML at http://www.cml.org.uk/cml/home

FUNDING Funding Methods and Trends Firms use retail and wholesale sources of finance. Up until 2007 there was significant expansion in the use of secondary sources of finance such as MBS, covered bond issuance and loan port¬folio sales. As of 2007 the UK had the EU’s largest MBS market. But in the continuing credit crisis, market-led wholesale funding sources have been unavailable.

Data Total Covered Bonds Outstanding (backed by mortgages) Total Covered Bonds Issuance (backed by mortgages) Total RMBS Issues

By September 2009, investor confidence had recovered sufficiently to allow lenders to start issuing Residential Mortgage Backed Securities (RMBS) and covered bonds again. The recovery continued in 2010 and the first half of 2011, with further RMBS and covered bond issues including the first deal from a nonbank lender in the autumn of 2010. Over the summer and early autumn of 2011, wider concerns about the sustainability of government deficits in some eurozone countries and corresponding concerns about the stability of the eurozone have weighed on investor sentiment, adversely affecting a range of financial markets. As a result, secondary market prices have retreated in UK RMBS and covered bond markets, but the flow of primary issuance has held up well against this background although it has not been entirely unaffected.

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Hypostat Tables

National Links

Bank of England http://www.bankofengland.co.uk/statistics/index.htm

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DEFAULTS Safety Nets

Repossessions

Mortgage Payment Protection Insurance is widely available. It is not generally built into mortgage products but instead sold separately as an optional additional product. Support for mortgage interest (SMI) is a Government scheme available to homeowners who are getting other income related benefits for a maximum of two years. SMI is normally paid directly to the lender and is calculated using a standard interest rate, currently 3.63%.

National Links

With the market in decline, unemployment rising and mortgage arrears rising substantially, in 2008 the government introduced new initiatives to help keep borrowers in their homes. These initiatives are relatively modest in their scope and the majority of borrowers in arrears are unlikely to be helped. In October 2008 the Civil Justice Council introduced a pre-action protocol, setting out what the courts would normally expect from lenders prior to instigating mortgage proceedings. This is in addition to the FSA’s rules under it’s Mortgage Conduct of Business MCOB)

Department for Work and Pensions (DWP) www.dwp.gov.uk

Data: CML http://www.cml.org.uk/cml/statistics

CML Policy Issues, Mortgage Interest Direct (MID) and Support for Mortgage Interest (SMI), 24 August 2011 at www.cml.org.uk

Policy: HM Treasury http://www.hm-treasury.gov.uk/press_132_08.htm Policy: Civil Justice Council http://www.civiljusticecouncil.gov.uk/

AFFORDABILITY Loan to Value Ratios Since the financial crisis the availability of mortgages at high loan-to-value ratios has declined. This year the average LTV on house purchase loans has been 70%.

EMF Links

Study on the Cost of Housing in Europe 2010

National Links

CML statistics http://www.cml.org.uk/cml/statistics

External Links

Structural Factors in the EU Housing Markets, March 2003 at www.ecb.int

Debt Servicing Costs For all house purchase lending, the typical initial mortgage interest payment consumed 11% of income, down from 19% in 2007. For first-time buyers, on average initial mortgage interest payments take up 13% of income, down from 21% in 2007.

CML statistics http://www.cml.org.uk/cml/statistics

House Price to Income Multiple (Average house price/Average disposable income per worker) The lower quartile house price to income ratio in England was 6.43 in Q2 2011, down from a peak for 7.36 in 2007 but up from 3.48 in 1996. The median house price to income ratio was 7.01 in 2010.

Department for Communities and Local Government (DCLG) www.communities.gov.uk

CONTACTS Alessandro Sciamarelli Head of Statistics European Mortgage Federation asciamarelli@hypo.org

Caroline Purdey Market and data analyst Council of Mortgage Lenders Caroline.Purdey@cml.org.uk FACTSHEET 2012 UNITED KINGDOM /8

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