Mortgage Lenders - The Basics
In the UK, mortgage lenders can be divided into four broad categories:
banks; building societies; finance companies; local authorities.
All these mortgage lenders are all regulated by the Financial Services Authority (FSA) and most of them are members or associates of the Council of Mortgage Lenders (CML).
Mortgage Lenders - Banks
Nowadays, banks are the main providers of mortgage finance, but this was not always the case in the past. Banks only overtook building societies as the main source of property purchase funding in 1997.
This change took place for two main reasons: starting with the Abbey National in 1989, many building societies demutualised and became banks; in addition, traditional banks moved more aggressively into the mortgage market in their own right and also took over some building societies (for example, Lloyds TSB took over the Cheltenham & Gloucester Building Society in 1995).
Banks currently offer a wide range of mortgage types and control around 80 percent of the mortgage market. Although high street banks and former building societies dominate, several overseas banks have also started to offer UK mortgages.
Mortgage Lenders - Building Societies
Although many building societies have converted to banks, more than 60 building societies are still in business, providing mortgages that account for around 19 percent of the market. Building societies boast that they can offer better deals for both savers and borrowers, because they do not have to pay dividends to shareholders. In many cases, mortgage comparison tables prove this assertion to be true.
The Nationwide Building Society dominates the building society sector. It is more than four times larger than its next largest rival (the Britannia Building Society) and accounts for over 40 percent of all the building societies' assets.
Mortgage Lenders - Finance Companies
Traditionally, consumer finance and insurance companies have not been volume players in the UK mortgage market. However, they have been successful in offering niche market mortgage products to some borrowers, where the major mortgage providers have been unable or unwilling to provide loans.
Certain mortgage product innovations originally developed by finance companies have subsequently been taken up by mainstream mortgage lenders; buy to let mortgages being a good example.
Mortgage Lenders - Local Authorities
The 1981 Housing Act gave council tenants the ”„right to buy' their council owned homes. When this legislation came into force, few lenders offered mortgages on former local authority properties, so ex-council tenants took out mortgages arranged by their local authority. As other mortgage lenders became more flexible in their attitudes, over time, towards funding the purchase of former council properties, the importance of local authority mortgages has diminished and will probably continue to do so.
Summary High street banks and former building societies dominate the mortgage market; building societies are still able to compete in the mortgage market because of their lower overheads; consumer finance and insurance companies offer specialised mortgage products to borrowers.
