A competitive mortgage market is essential as it drives innovation and delivers better consumer outcomes.
However, despite seeing a changing market since the onset of the pandemic, the recently updated mortgage lender league table (Gross Lending Table 2021), as issued by UK Finance, showed that it was still the usual suspects in the conversation.
It’s possible that, as we head into 2023, the challenges of affordability issues and adapting to Consumer Duty rules will see some movers and shakers appear in the mortgage lending arena.
I suspect this will be the case, with those that adapt being the winners and those that do not being left behind.
The top six
In 2021, most lenders saw their gross lending rise in a buoyant market. However, market share gives a better measure of success. Starting with the top six, while their combined market share dropped very slightly, it is still just shy of 72%. This means that nearly three out of every four mortgages were completed by one of the top six lenders in 2021 and every one in four shared amongst over 100 lenders. Wow.Among the top six, three of these lenders saw their market share reduce – Lloyds Group, NatWest and HSBC. Meanwhile, Barclays saw a rise from 9% to 10.7% share, Nationwide saw a modest rise, and Santander’s market share remained the same as in 2020, despite seeing a 25% increase in gross lending.
Challenging the top six
Outside the biggest lenders, we saw both Coventry Building Society and Yorkshire Building Society (fuelled by the continued growth of Accord) move up one place each as their market share grew, leapfrogging Virgin Money.
While the market share of the Coventry and Yorkshire brands grew, it is still some way off sixth placed HSBC. Nonetheless, it is great to see some movement up the league table.
Outside The Top 10
Looking outside the top 10 lenders, mention should be given to Co-operative and Leeds Building Society, both of which saw respectable market share growth. Of the specialist lenders, OneSavings Bank held its position while Kensington rose a few places, and Metro Bank moved back up the table. Otherwise, it was very much ‘as you were’.
Finally, outside the top 20, there are 48 different lenders with a combined market share of 0.5%. Is this sustainable? Is this where market consolidation will occur?
Buy-to-let
Last year, we saw Lloyds Banking Group become the largest buy-to-let (BTL) lender, swapping places with its rival Nationwide. Moreover, both brands increased their market shares, with Lloyds seeing significant growth from 11.5% to 18.7%.
As in the overall league table, it is Coventry that is challenging, with its share of BTL lending rising, as did Santander’s. With the top two striking hard in 2021, not many other lenders saw their market share rise, with the likes of Fleet, HSBC, Keystone, Pepper Money and Monmouthshire Building Society being some of the exceptions.
This highlights that lenders who offer BTL have an opportunity to grow market share in this sector – not by trying to going head-to-head with the top two, but by picking off everyone else. Opportunities for growth exist here, with a clear focus on market share growth rather than simply meeting sales targets.
Challenging the status quo
Not every lender will want to grow market share or has the infrastructure to do so. Others will be different. In a mortgage market that is dynamic, perhaps the competitive landscape needs to be more dynamic also. The status quo has been around for too long.
With the much-publicised affordability challenges, and the growth in use of affordability platforms, anecdotally brokers have discovered more lenders to deal with. This can only be good news for the market. But brokers can only deal with those lenders that offer suitable products for their clients and lenders they can trust to get the deal done with minimum fuss.
Now is the time to change. With Consumer Duty rules on the horizon, lenders will need to be designing products that suit the diversity of needs that exists. They will need to be doing more research, adopt customer immersion principles and get closer to brokers.
Affordability platforms give lenders great data insights. It is those lenders that embrace all this that will be the market challengers. And I also expect to see market consolidation occur to help in this regard. The times are a-changing.
