The Mortgage Loans Industry and Market: A Survey

An ISR Business finance & investment study

This widely used study provides a detailed business-economic account of mortgage lending and borrowing.

The main focus is on the UK. However, the book’s examination of the factors affecting business growth and profitability, market competition, and innovation is relevant to mortgage lending in advanced industrial countries generally. Around the world, such factors as growing competition, customer mobility, and housing market-price fluctuations make it more important than ever for lending organizations to be financially robust, well managed, and abreast of significant business-economic developments.

This book provides a comprehensive survey of the main industrial-commercial trends and issues. In addition to analyzing the policies and practices of major lending organizations, it examines key influences on the behaviour of mortgage borrowers and personal savers and investors generally.

Thumbnail Mortgage loans


1. The Mortgage Loans Industry and Market: an Overview

Introduction* The major factors influencing the growth and performance of institutions* The mortgage loans market: economic aspects, political-legal influences, demand and demand trends (etc.)* Recent product and service innovations* Marketing* Savings and other sources of funds*

2. The Mortgage Loans Industry in the UK

The structure of the industry* Market shares of building societies and other lenders* Business-organizational trends* Diversification*

3. The Growth and Performance of Institutions

Defining and measuring growth and performance* The importance of location* New technology and its benefits* Cultural factors* Competition, customer pressures, and economic and political-legal conditions* Organization, personnel recruitment and training, and payment systems* Size and economies of scale* Incorporation* The supply of savings and other funds* Marketing, product/market developments, and other key influences on growth and performance*

4. The Mortgage Loans Market (1): Economic Aspects

The main economic factors affecting turnover, growth, and performance* The housing market and house prices* Household incomes, interest rates, and mortgage demand* House purchases as investments* The main responses of lenders to housing/mortgage market recession*

5. The Mortgage Loans Market (2): Political and Legal Influences

Official monetary policy and interest rates* The effects of taxation* Political and legal influences on rented housing* Proposals from lenders for politically-legally aiding the market*

6. The Mortgage Loans Market (3): Demand and Demand Trends

The main categories of mortgage borrower, and trends in demand* The supply and demand for low-cost and other products* New sources of demand* Borrowing for home improvements* The main responses of borrowers to market-economic recession*

7. The Development of New Products and Services

Major factors affecting the success or otherwise of product and service innovations* Types of mortgage cost reduction and special offer* Re-mortgage options*

8. Marketing

The growth in importance of marketing* Major recent developments* The main mortgage selling points* Customer convenience and one-stop shopping* Organizational and personnel aspects of marketing* Market research, advertising, and public relations* Corporate design trends* Customer attitudes, motives, and behaviour: a summary of market research findings*

9. Mortgage Lenders and the Savings Market

Market shares of deposit-taking institutions* The importance of branch location (access, customer convenience)* The introduction and use of new technology* Trends towards increased competition and decreased customer loyalty* Economic and political-legal influences on the supply and demand for savings* The costs of collecting and retaining savings* Major recent developments in the marketing of personal savings and investment schemes* The main financial product selling points* Retail versus wholesale sources of mortgage lending funds*


Print book

First published 1992. Third edition 2008. New impression 2012.

ISBN 9780906321447

113 two-column pages


Price £98.95 including free postal delivery


E-book price £16.15 (British pounds 16.15)

E-book ISBN 9780906321621

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Sample passages

Major economic factors making for buoyant mortgage loans markets, increases in turnover, and higher earnings on the part of lenders are:

1. high and rising house prices, which buyers can afford;

2. industrial-economic growth, rising personal incomes, and high levels of employment;

3. high rates of new household formation;

4. high levels of personal savings, and the ability of bank and building society accounts to compete with equities (etc.) in terms of the returns offered to investors;

5. high and rising demand for home ownership as such – or strong household preferences for buying rather than renting; and

6. attractive mortgage interest rates.

On this last score, mortgage interest rates tend to be lower under generally favourable monetary economic conditions – featuring low inflation, balance of payments surpluses, international exchange rate stability, and low bank base interest rates…(pages 9-10)

Like moving into estate agency and retail banking, moving into the personal investment and insurance business requires new investment, significant organizational adaptation, and recruiting and training new managerial and professional staff. Even big institutions with large-scale financial investment resources and the capacity to allocate substantial other resources to the task may encounter major managerial, organizational, and other difficulties in running new operations efficiently and profitably.

In this as in other industries, removing artificial political-legal and other obstacles to market entry (competition, integration) and developing new products and services has generally positive effects on growth and performance.

However, the movement of financial or other organizations into radically different, functionally unrelated areas of activity should not negate or reverse the positive industrial-commercial benefits of industrial-commercial structural differentiation, functional specialization, and autonomy.

Other factors being equal, specialist suppliers tend to find it easier to scale-up, realize economies, and produce and market cost-efficiently than their functionally diffuse or generalist counterparts do. In practice, large functionally diffuse conglomerates often have to set up separate divisions or otherwise increase organizational differentiation, functional specialization, and autonomy internally in order to effectively grow and perform. Even then, they may experience major problems of communication and integration.

Inability of highly functionally diffuse, unspecialized organizations to supply given products at the highest quality and the lowest prices is a constraint on diversification across the whole of industry and commerce… (page 20)

Lenders need competitive products, satisfactory levels of market demand, and access to finance (personal savings, wholesale funds, and other sources of cash) for retailing/conversion into mortgage loans on satisfactory terms and conditions.

Beyond this, wider economic and related environmental factors affect growth and performance in the mortgage loans industry and market. General interest rates and inflation, overall new housing starts, house prices in relation to incomes, and rates of new household formation in the population are all key environmental influences.

The growth and performance of individual organizations also crucially depends on effectively marketing products and services.

Lenders require good managements and productive staff using modern technology.

The nature and size of their existing customer bases/branch networks will affect their capacity to develop new products and service. In turn, product and service innovation will impinge on overall competitiveness in price and non-price terms… (page 35)

As far as mortgage lenders are concerned, their responses to deteriorating conditions in the mortgage loans and housing markets might take several forms.

Lenders may seek cost reductions and increases in efficiency to maintain or increase earnings, margins, and productivity/profits per employee. The means may range from introducing and utilizing new technologies, through mergers intended to increase economies of scale, to branch closures and other rationalization measures.

Product and service innovations and diversification are other common responses.

Lenders may attempt small more competitive pricing of products. For example, they might offer generally lower, fixed, and capped interest rate mortgages and more-generous discounts for first-time buyers, larger borrowers, or borrowers who put down larger deposits (the latter being less likely to default on their payments)

Increase competition for lower-cost or otherwise more attractive savings and wholesale funds (for conversion into mortgage loans or other uses) is also likely.

Expansion abroad is another possibility… (page 50)

The comparative costs/benefits of the two modes of tenure to individual households are always important. Here, it is necessary to assess costs and benefits in terms of a number of factors:

· the prices of accommodation;

· the size, quality, location, and general value for money of the properties on offer;

· the extent of choice;

· the importance that households attach to personal independence and mobility; and

· prospects for residential property asset growth or depreciation.

The level of maturity of the owner-occupied housing and mortgage loans markets is also an important variable. There are probably limits to the number of households who are in the market for owner-occupied as distinct from rented properties. As the market saturation level approaches, investors will experience diminishing or negative marginal returns from owner-occupied housebuilding and mortgage lending. Thus, builders and investors catering for households with comparatively small and uncertain incomes and high propensities to default are likely to switch to the rented housing sector.

Finally, general trends in house prices, inflation, interest rates, and other economic and wider social variables are significant influences. These will affect the price and asset value of houses both as consumer goods and as investment purchases. Substantial falls in the value of residential property assets and/or diminution of the security of mortgage lending on residential property will encourage revival of the rented housing industry and market. An environment that features falling house prices, substantial mortgage arrears and repossessions, or reductions in the sale prices of properties to levels substantially below their worth on paper will be generally bad for residential property purchasing and investment… (page 59)

Home buying has major non-financial benefits (such as increased security, status, and independence) as well as financial. At the end of mortgage terms, homeowners will have little more than maintenance and insurance costs to pay on their homes – plus the bonus of a considerable capital asset. They might use the latter as equity to finance other property purchases, extensions, luxuries, or businesses – and then finally, bequeath to children.

By contrast, non-owners will still be paying rent. Not only this, house-purchasing costs will have remained comparatively stable in real terms over the years – whereas the rents payable by tenants will usually have increased steadily in line with inflation. Finally, tenants will lack the capital assets and other economic and non-economic benefits enjoyed by homeowners… (page 75)

Other factors being equal, lower costs will increase profits and supplier competitiveness. In competing for new business, firms will be able to make price reductions or offer attractive temporary and special discounts (etc.) to customers.

In mortgage lending as in other businesses, time is money.

Speed, reliability, and flexibility in arranging loans will result in cost savings for both lenders and borrowers. Mortgage lenders might reduce costs by increasing speed and efficiency at every stage of the production and distribution process – from initially handling inquiries, through taking-up references and checking the statuses and incomes of applicants, to commissioning surveys and making offers.

The ability to offer convenient one-stop shopping for residential property and related transactions will also save time and money for both lenders and clients.

Mortgage lenders have traditionally supplied bridging loans enabling borrowers to complete purchases of new properties while waiting to sell their own homes. However, flexible mortgage arrangements that suspend old mortgages while buyers move into new homes or wait to sell/complete the sale of the old might be better. Suspending mortgage payments and adding them to new mortgages rather than relying on bridging loans can save considerable time, money, and hassle on both sides. The terms of mortgages might extend to cover such overlap periods without any increase in capital repayments or other charges. House owners will benefit from being able to buy new properties without having to wait to sell their own – and thus avoiding long house buying chains and the delays that afford opportunities for gazumping and gazundering.

Over the years, mortgage lenders have developed a wide range of new products and payment options designed to be cheaper, more flexible, and advantageous in other respects than traditional repayment and endowment mortgages… (page 82)

● Across the board, customers are more likely to seek the opinions and advice of professional experts such as bank managers and insurance brokers when they are opening investment rather than savings accounts – and when relatively large sums of money are involved and levels of risk are higher.

When discussing their financial affairs in branches, customers prefer privacy – and so dislike open-plan areas. They also prefer to talk with older and more experienced staff whom they feel will be better able to answer questions and offer good advice.

Finally, research indicates that the effects of changes in corporate logos and images on financial product sales are comparatively limited. Public awareness of logo changes tends to be low. Overall, corporate image building as a sales-and-marketing strategy is far less effective than

· improving the actually quality and value-for-money of products;

· effective personnel recruitment and training; and

· generally high standards of customer care in practice… (pages 97-98)

Stock market corrections are inevitable. The risks involved in equity investments will always be higher than keeping money in savings deposit accounts.

Such things as futures and options trading have reduced overall volatility. Investing in derivatives is still largely the preserve of professionals. However, ordinary personal investors have been able to significantly reduce risk and increase returns by investing for the long- rather than the short-term and spreading share purchases across a range of companies, industries, and market sectors. Nowadays, numerous investment trusts and managed funds spread the risks of investing in individual companies and market sectors. Many of these operate quasi-savings subscription schemes under which personal investors can put money into equities in small regular amounts rather than large occasional tranches… (page 112)