Table of Contents

ABOUT DATAMONITOR

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CHAPTER 1 INTRODUCTION

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Scope and definitions

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Scope

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Definition of Right to buy

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The Right to buy purchase process explained

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Right to buy mortgages explained

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However, there is an extra step for the mortgage procedures on the lender's side

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Who is the target reader?

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How to use this briefing?

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CHAPTER 2 THE RIGHT TO BUY SCHEME IN CONTEXT

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Right to buy was introduced in 1980 to boost home ownership

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Right to buy generally applies to secure tenants

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Assured tenants of RSLs who previously held secure tenancies with local authorities have the Preserved Right to buy

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Under the Right to buy scheme, the tenant is allowed to buy their property at less than market value

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Discounts available vary by region

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The government has introduced various amendments to discount ceilings throughout the years

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In addition to boosting home ownership, Right to buy fulfills other social and economic aims

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However, the scheme also has a number of other social and economic aims

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Right to buy remains a popular measure among eligible tenants but new planned HomeBuy schemes will provide competition to the scheme

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Schemes offering discounts and grants

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Schemes offering equity loans

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Schemes offering shared ownership

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These schemes are limited by their exclusions

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New HomeBuy schemes position themselves as serious alternatives to the Right to buy scheme

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Since its introduction, Right to buy has helped more than 2.2 million public sector tenants in Great Britain into homeownership

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However, the Right to buy scheme has attracted criticisms

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Alleged exploitation of the scheme by companies and individuals has tainted the Right to buy market

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Some Right to buy service companies were found to apply hard sales techniques to stimulate demand

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Right to buy incentive companies were found to exploit a loophole in the Right to buy scheme

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Some tenants were exercising their Right to buy in regeneration areas

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Right to buy sales have led to a shortage in affordable rented properties

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However, the lack of investment in new builds has also contributed to this situation

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The government has introduced various measures to clamp down on Right to buy profiteering

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A less attractive Right to buy to discourage abuse

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The new extended qualifying period is not expected to affect RTB sales in the short-term

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Conclusions

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CHAPTER 3 SIZING THE RIGHT TO BUY MORTGAGE MARKET

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The Right to buy mortgage market was worth £2.6 billion in gross advances in 2003/2004

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Methodology used in sizing the Right to buy mortgage market

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Step one: Right to buy sales by local authorities and registered social landlords

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Step two: capital receipts per property sale

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Step 3: total capital receipts from Right to buy sales in England

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Step four: the size of the Right to buy mortgage market

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Right to buy gross advances in England rose by 24.9 per cent on a yearly average over the period 1999/2000 to 2003/2004

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Gross advances for Preserved Right to buy are the fastest growing product line

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Advances for properties sold under Right to buy by local authorities in Great Britain reached £2.8 billion in 2003/2004

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In terms of market share of the total secured lending market, the Right to buy mortgage market has barely progressed over the previous years

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Sound macroeconomic factors have contributed to the stable growth of the market

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Sound macro-economic conditions have laid the foundation for growth in the total secured lending market including the Right to buy mortgage market

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Strong growth in GDP contributed to stable economic conditions in 2004

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Interest rates are still relatively low despite witnessing four successive increases of 0.25 percentage point in 2004

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The Right to buy mortgage market is likely to have been more affected by the successive increases in base rate of 2004 than the mainstream mortgage market

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House prices have soared in recent years thus boosting the UK mortgage market

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However, factors specific to the Right to buy mortgage market have also played a role in the sustained growth

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The downward review of discounts available on Right to buy in hot spots in 2003 meant that the selling price per property has increased

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Fear about the Right to buy scheme being scrapped also inflated the number of sales in 2002/2003 and 2003/2004

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RTB sales have probably fallen back to their average normal level for 2004/2005

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Remortgaging, although much less significant than in the mainstream market, contributed for around 20 per cent of gross advances in 2004

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Title insurance will boost remortgaging in the future

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Title insurance has the potential to impact positively on the Right to buy mortgage market by adding security to securitization transactions

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Conclusions

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CHAPTER 4 THE LANDSCAPE OF THE RIGHT TO BUY MORTGAGE MARKET

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The structure of the Right to buy mortgage market is characterized by a wide array of lenders and brokers

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There are two major types of players in the Right to buy mortgage market

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Lenders in the Right to buy mortgage market are not particularly aggressive

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All mainstream mortgage lenders among the top 15 offer mortgages on Right to buy although they do not advertise the product

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The majority of the non-standard mortgages players have a presence in the Right to buy mortgage market

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Despite the lack of aggression shown by Right to buy lenders, non-standard players appear to have a stronger image than mainstream players in this market

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52 per cent of households who bought their present accomodation as sitting tenants under the Right to buy scheme were receiving state benefits

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In addition, interviews carried out among players reveal that new mortgage lending under the Right to buy scheme is on the rise

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Datamonitor estimates that 45 per cent of gross advances realized under the Right to buy scheme in 2003/04 accounted for the non-standard segment

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A number of reasons can explain the lack of dynamism shown by Right to buy lenders

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The fact that the market is scattered means that each player owns a very small share of the Right to buy mortgage market

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The limited potential of the Right to buy mortgage market has dampened competitiveness

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Other niche mortgage markets are seen as more profitable

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Should lenders concentrate more on Right to buy?

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Similar to many niche mortgage markets, brokers play a major role in the Right to buy sector

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Brokers are an important chain in the distribution of Right to buy mortgages given the specific needs of Right to buy customers

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A few factors explain the high concentration of brokers in the Right to buy mortgage market

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Brokers present in the Right to buy mortgage market are generally those who operate in the non-standard market

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In addition, there are a certain number of small scale bespoke Right to buy mortgage brokers

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Hundreds of Right to buy service companies operate across the country

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Conclusions

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CHAPTER 5 FORECASTING THE RIGHT TO BUY MORTGAGE MARKET

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Datamonitor's forecasting model revisits the factors which have impacted the Right to buy mortgage market and assesses their importance in the future

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Macroeconomic factors and factors specific to the Right to buy mortgage market are included in the forecasting model

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Various assumptions are built into Datamonitor's Forecasting model

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The Right to buy mortgage market in England continues to grow but at a much slower pace

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Gross advances in the Right to buy mortgage sector in England will amount to £2.7 billion in 2008/2009

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Preserved Right to buy will drive the Right to buy mortgage market forward

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Market share of Right to buy mortgage advances within the total secured lending market will remain marginal

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Mortgage advances in Great Britain for Right to buy under local authorities will fall to £2.3 billion in 2004/05 before reaching £2.5 billion in 2008/09

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Despite the number of RTB sales falling, gross advances will rise at an annual average rate of 2.3 per cent

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Conclusions

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CHAPTER 6 APPENDIX

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Supplementary data

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Graphics relating to Chapter 2: The Right to Buy Scheme in Context

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Graphics relating to Chapter 3: Sizing the Right to Buy Mortgage Market

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Definitions

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AAGR

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Assured tenant

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Bank of England base rate

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Buy-to-let

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CAGR

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Deed of postponement

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Gross advances

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Loan-to-value (LTV)

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LA

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Non-standard customer

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Preserved Right to Buy

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Remortgaging

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Right to buy (RTB)

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RSL

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Secure tenant

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Self-certification mortgage

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Title insurance

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Research methodology

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References

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Relevant readings

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UK Mortgage Market Map

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Key Features

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For futher information

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Current reports

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Future Datamonitor publications

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Relevant links

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Datamonitor's custom research capabilities

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SPP writing team

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How to contact experts in your industry

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List of Tables

Table 1: Maximum discounts available for tenants purchasing houses and flats or maisonettes through Right to buy in England and Wales, July 2005

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Table 2: Maximum discounts available under the Right to buy scheme by region, July 2005

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Table 3: The changing Right to buy discount regime, 1980 to 2005

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Table 4: Number of Right to buy sales in England split by tenant, 1999/2000 to 2003/2004

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Table 5: Number of Right to buy sales in Great Britain under local authorities, 1999/2000 to 2003/2004

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Table 6: Average capital receipts per social housing sale by local authorities, 1999/2000-2003/2004

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Table 7: Capital receipts received by local authorities from Right to buy sales, 1999/2000-2003/2004

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Table 8: RTB gross advances split by tenant, 1999/00 - 2003/0004

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Table 9: Market share of Right to buy within the total secured lending market, 1999/2000 to 2003/2004

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Table 10: Top 15 largest mortgage lenders by balances outstanding position on Right to buy mortgage, July 2005

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Table 11: Non-standard lenders active in the Right to buy mortgage market, July 2005

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Table 12: Examples of brokers operating in the Right to buy mortgage market, July 2005

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Table 13: Examples of bespoke brokers in the Right to buy mortgage market, July 2005

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Table 14: Market drivers for the Right to buy mortgage market, 1999/00 - 2008-2009f

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Table 15: Datamonitor's forecast for the Right to buy mortgage market in England, split by tenant, 2004/05-2008/09f

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Table 16: Datamonitor's forecast for the number of Right to buy sales in England, split by tenant, 2004/05-2008/09

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Table 17: Forecasted market share of Right to buy mortgage advances within the total secured lending market, 2004/05 to 2008/09

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Table 18: Datamonitor's forecasts for Right to buy under local authorities in Great Britain, 2003/04 to 2008/09

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Table 19: Right to buy statistics for local authorities in Great Britain, 1999-2004 Q1

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Table 20: The number of permanent dwellings completed in Great Britain by tenure, 1990/91 - 2003/04

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Table 21: Number of dwellings sold under the Right to buy scheme by local authorities in Great Britain, 1980/1981 - 2003/2004

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Table 22: Gross advances for RTB sales under local authorities in Great Britain, 1999/2000 to 2003/2004

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Table 23: Year-on-year growth in the total secured lending and Right to buy markets, 1999/2000 - 2003/2004

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Table 24: Halifax House Prices Index, 2000-2004

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List of Figures

Figure 1: The Right to buy purchase process, July 2005

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Figure 2: The number of properties sold via Right to buy under local authorities in Great Britain has fluctuated throughout the years, 1980/81 to 2003/2004

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Figure 3: Gross advances in the Right to buy mortgage market reached £2.6 billion in 2003/2004

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Figure 4: Gross advances for properties sold under RTB by local authorities in Great Britain amounted to £2.8 billion in 2003/2004, 1999/2000 to 2003/2004

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Figure 5: Growth in the Right to buy mortgage market outpaced growth in the total secured lending market in 2002/2003 and 2003/2004, 1999/00 - 2003/04

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Figure 6: 52.6 per cent of households which bought their present accommodation under Right to buy had a household income of under £15,000 in 2003/2004, 2003/2004

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Figure 7: Growth in house prices were strong over the last three years, 2000 - 2004

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Figure 8: 48 per cent of households who bought their present accommodation under the Right to buy scheme were inactive, self-employed or unemployed, 2003/2004

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Figure 9: An estimated 45 per cent of RTB gross advances in 2003/2004 accounted for the non-standard sector, 2003/2004

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Figure 10: Dwelling stock owned by local authorities is continuously falling, 2000-2004

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Figure 11: Buy-to-let and self-cert have grown faster and are bigger in size than Right to buy, 2000-2004

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Figure 12: After falling back to its normal level in 2004/05, gross advances in the England Right to buy mortgage market will reach £2.7 billion in 2008/09, 2003/04 to 2008/09f

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Figure 13: RTB gross advances in Great Britain under local authorities will grow at a stable rate from 2004/05 to 2008/09 despite a continuous fall in the number of Right to buy sales, 2003/04-2008/09

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Figure 14: The UK Mortgage Market Map covers a wide range of mortgage sectors

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Figure 15: Mortgage sectors covered within the UK Mortgage Market Map

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Figure 16: Datamonitor's core consulting capabilities

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