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Today we publish our data showing mortgage lending to individuals and buy-to-let mortgage lending in 2019 by UK Finance mortgage members. The data covers 2019 only, and therefore does not take into account the effects of Covid-19.
Our full market figures reflect mortgage lending to individuals (both landlords and homeowners) on residential properties, consistent with mortgage lending data published by the Bank of England. Our buy-to-let market figures reflect mortgage lending on residential properties to both individuals and companies.
In 2019, gross lending totalled £268 billion, down 0.3 per cent on 2018. Buy-to-let gross lending totalled £42.2 billion, up 4.2 per cent on 2018.
Chart 1: Growth in lending by lender type, 2018-2019
Source: UK Finance Largest Lenders
The chart above shows that the largest UK banks have shown strong annual growth, with specialist lenders performing well in the buy-to-let sector and stable growth in the full market.
One of the possible explanations for this growth in the large banks could be a decline in lending from direct competitors, coinciding with the introduction of ring-fencing at the start of 2019.
The Bank of England discussed the effect of ring-fencing on mortgage lending in detail in its May 2019 Global developments and domestic financial conditions report, however I will give a short summary here.
In a nutshell, ring-fencing meant that by the start of 2019 the largest UK banks were required to keep their core UK retail banking separate from the rest of their banking activities (such as investment).
Because UK retail banking is ring-fenced, it means there are only certain things that banks can do with the money from borrower deposits. As deposit levels are on average higher than lending levels, these large lenders have used surplus retail deposits in the ring-fenced organisation to increase mortgage lending.
This increase in supply of mortgages has contributed toward the average price of new mortgages dropping significantly, as larger building societies and mid-tier lenders compete with the largest banks to attract borrowers to their products.
Chart 2: Market share of largest UK banks in the mortgage market
Additionally, larger lenders are able to take advantage of the internal ratings-based approach (IRB) to capital weighting (as opposed to the standardised approach that smaller firms follow). This further reduces the cost of funds for larger lenders, helping to drive down pricing. As a result, those smaller lenders on the standardised approach have found it more difficult to compete in the mainstream market where ring-fencing and IRB have lead to the largest firms dominating market share.
This hasn't reduced the diversity of the mortgage market, however, as specialist lenders continue to thrive in market segments where manual underwriting is required, such as for self-employed customers or those with more complex incomes. Larger, and to some extent mid-sized firms, are less able to compete in these segments as their largely automated systems are unable to provide the tailored approach to these loans that is required.
Overall, despite this increase in market share from the largest banks, the mortgage market has remained competitive with a variety of different types of lenders catering for all borrower needs.
<p>Our ranking tables show members? gross mortgage lending in the calendar year and balances outstanding at the end of the year, rounded to the nearest £10 million for buy-to-let and £100 million for the full market and ranked on the same basis. This means that the very smallest firms ? those with under £5/£50 million of lending respectively ? do not feature. </p>
<p>Neither of these tables include commercial loans, such as to purchase properties rented for office space. </p>
<p>As the bases for our largest lender tables for full market and buy-to-let mortgage lending differ, it is not possible to infer any one lender?s residential mortgage business by subtracting one from the other. </p>
<p>You can find more information about ring-fencing on the Bank of England?s website <a href="https://www.bankofengland.co.uk/quarterly-bulletin/2016/q4/ring-fencing…; target="_blank">here</a>. </p>
<p>For more information on the mid-tier banking sector, please see the UK Finance report <a href="https://www.ukfinance.org.uk/policy-and-guidance/reports-publications/m… banking: Creating a level playing field for competition</a>.</p>
Callum Bilbe, Analyst, Data & Research, UK Finance