Contents:

OUR VIEW 1 CATALYST 1 SUMMARY 1 METHODOLOGY 1 ANALYSIS 2 In a mature market, innovation is key to differentiation and a successful business 2 There is an ongoing need for innovation given the high degree of competition in the UK mortgage market 2 Innovation can come in a variety of forms 2 While innovations in the UK have been few and far between over the last year, there are a number worthwhile mentioning 3 Product design: Kent Reliances intergenerational mortgage created a slew of debate 3 There has been significant criticism of the mortgage by the industry 4 Yet such a mortgage is really a matter of perception 4 Product design and structure: shared equity mortgages are a new product to the UK market and one with substantial potential 5 But at present they are hindered by a number of weaknesses 5 Repayment options: Premier Crus Fine Wine Investment Mortgage is a creative but highly niche product 6 Repayment options: amid criticisms, lenders continue to lengthen mortgage terms 6 Customer acquisition and loyalty: Yorkshire Building Society attaches credit cashback rewards to its mortgage 6 Customer acquisition: some lenders now offer conveyancing services to give the customer added convenience 7 Product structure: the current economic climate has given rise to intermediaries offering new and unique remortgaging services for consumers going bankrupt 7 Distribution: Mortgagebundles.com: the appearance and disappearance of an online mortgage auction site 7 Yet there have been a number of important innovations abroad over 2005-6, some of which could be used by UK lenders 8 Customer acquisition and loyalty: Canadian Imperial Bank of Commerce (CIBC) builds up loyalty by tying its mortgage to the well-known Aeroplan scheme 8 Expanding the provision of loyalty schemes is a real possibility for UK lenders 9 Product design: first time buyers in Canada and New Zealand funding their deposit by borrowing from their pension funds 9 Canadas scheme is based on a loan whereas first time buyers in New Zealand do not have to pay the deposit back 9 While an interesting idea, such a mortgage is not likely to become a reality in the UK 10 Distribution: a number of French lenders offer a range of mortgage-related products in a pack 10 For example, Caisse dEpargne offers a pack immobilier 11 UK lenders could quite easily create their own version of a pack 12 Customer acquisition and loyalty: BBVA is tapping into the first time buyer market through a current and savings account 13 UK lenders could be well-rewarded by creating a loyalty-based "youth brand" 13 Product design: 50 year mortgages are now available in Spain and Portugal 14 If UK lenders can negotiate their way around potential negative criticism, lenders will be able to introduce 50 year mortgages 14 Marketing and cross-selling: UBS Switzerlands family mortgage links with its pension fund 14 This type of innovation already occurs in the UK, but has potential for further development 15 But ultimately, innovation is only worthwhile if it adds value to potential customers 15 Innovative products or characteristics must add value to a lenders proposition 15 There are a number of success ingredients that lenders should take into consideration when looking at implementing innovation 16 APPENDIX 17 Definitions 17 Interest-only mortgage 17 Open Market Homebuy scheme 17 Further reading 17 European mortgage reports 17 UK mortgage reports 18 UK mortgage briefings 18 Forthcoming mortgage briefings 19 UK Mortgage Market Map 2006 19 Key Features 21 For further information 22 Relevant links 22 Our custom research capabilities 23 Ask the analyst List of Tables Table 1: Total discount on a £130,000 mortgage over three years, September 2006 List of Figures Figure 1: Caisse dEpargne states that it offers the most complete pack immobilier on the market, November 2006 12 Figure 2: The UK Mortgage Market Map 2006 covers a wide range of mortgage sectors 20 Figure 3: Taxonomy of UK Mortgage Market Map 2006 21 Figure 4: Our core consulting capabilities 24