Buy-to-let - UK - March 2009

Table of Contents

• Issues in the Market
• Key issues
• Market definitions
• Abbreviations
• Market in Brief
• The market shifts down sharply
  • Figure 1: Number and value of buy-to-let sales, 1999-2008
• Supply beginning to exceed demand for rental properties
• Reluctant landlords are the most vulnerable in the short term
• The risk profile to worsen
  • Figure 2: The percentage of BTL mortgages in arrears of three months or more, 1999-2008
• Landlords make informed judgements
  • Figure 3: Property investor typologies -- landlords v non-landlords, January 2009
• A good opportunity to pick up a bargain
• Lenders retrench and innovation dries up
• Lloyds Banking Group the new market leader
  • Figure 4: Market share of the leading buy-to-let providers, by amounts outstanding, mid-2008
• Heavy reliance on intermediaries
• Buy-to-let advertising activity follows the market down
• Improvement needed in advertising
• Attitudes towards property investment remain largely positive
• Key targets for the BTL market
  • Figure 5: The BTL consumer typologies and their attitudes towards a BTL investment, January 2009
• Broader Market Environment
• Key points
• Looks like trouble ahead
  • Figure 6: The quarter-on-quarter growth of real GDP, Q1 2003-Q4 2008
• Unemployment: Every cloud has a silver lining
  • Figure 7: The level of unemployment in the UK (All: Aged 16+) seasonally adjusted, 2006-08
• Will renting help limit the rise in unemployment?
  • Figure 8: Household characteristics in England: Recently moved households, by current and previous tenure, 2006/07
• Severe pressure on mortgage lenders
• Mortgage rates coming down...
  • Figure 9: UK Inter-bank, three-month rate+ and selected UK bank rates*, January 2001-December 2008
• ...as banks respond by narrowing their margins, whilst...
  • Figure 10: How BTL lending spreads changed+, Q2 2007-Q1 2009
• ...mortgage lenders don' t know which way to turn
• Demographic trends should boost rental sector
• A strong rise in demand for rented flats
  • Figure 11: The breakdown of households in England, by tenure and household type, 2007
• Greater social segmentation
• More local hotspots
  • Figure 12: The 20 areas of England predicted to see the fastest growth in household numbers, 2001-11
• Hotspots around universities
• Implications and opportunities
• Migration trends: is the tide turning?
  • Figure 13: Approved applicants for the Worker Registration Scheme+, Q1 2005-Q3 2008
• Space in the rented sector
• Technologically -- Improving the flow of information
• Internal Market Environment
• Key points
• Has the love affair with home ownership ended?
  • Figure 14: Tenure structure of dwellings (index of number of dwellings, 1991=100), 1991-2007
• Private renting no longer the Cinderella tenure
  • Figure 15: Total number of UK private rented dwellings (million) and the share of all dwellings accounted for by private rentals (%), 1981-2007
• But is the BTL bubble beginning to deflate?
  • Figure 16: Share of private rental dwelling being purchased with BTL mortgages, 1998-2008+
• House prices -- capital gains are disappearing...
  • Figure 17: Index of average mix-adjusted UK house prices (fed 2002=100), February 2002-November 2008
  • Figure 18: The average value of rented houses and flats -- all regions (£000), 2007 and 2008
• ...and set to go on shrinking?
  • Figure 19: The percentage annual change+ in the index of average mix-adjusted UK house prices, January 2006-March 2008
  • Figure 20: The annual+ percentage change in the average value of rented houses and flats -- all regions (£000), February-November 2008
• Regions outside the South East gain the most
  • Figure 21: Index of house prices, by region, November 2008 (February 2002 = 100)
• All regions suffer but London and the South East the most
  • Figure 22: The average value of rented houses (£000), by region, 2007 and 2008
  • Figure 23: The average value of rented flats (£000), by region, 2007 and 2008
• Rental demand strengthens but rental returns dip...
  • Figure 24: Rental returns (% yield) to landlords, Q3 2003-Q4 2008
• ...but lower interest rates boost geared returns
  • Figure 25: The annual rate of return on BTL (geared investment and cash purchase), Q1 2006-Q4 2008
• The risk profile of BTL worsens sharply
  • Figure 26: Buy-to-let mortgage arrears, maximum LTV and minimum rental cover, 1999-2008
• Fraud also an issue
• Implications and opportunities
• Profile of residential investment landlords: who are they
• The average landlord is almost 50
  • Figure 27: Key landlord demographics, average of three quarterly surveys, March 2008, August 2008 and October 2008
• Increasing regulation is a cause for concern for landlords
• Tenancy Deposit Scheme
  • Figure 28: Tenancy deposit schemes joined by landlords, September 2008
• Plan for enforced self-regulation
• The Carsberg Report
• Law Commission Report
• Competitive Context
• Key points
• Buy-to-let property competes in the asset market
  • Figure 29: Sources of passive income, 2006/07
• Greater competition in the property investment market
• Nowhere to turn?
• BTL still generates good income returns compared to competitors...
  • Figure 30: Rental yield on houses compared with the return on bank deposits and the dividend yield on stocks and shares, Q3 2006-Q3 2008
• ...and proved more resilient than the stock market for capital appreciation
  • Figure 31: Capital return on property and equity, Q3 2003-Q3 2008
• Strengths and Weaknesses
  • Figure 32: Buy-to-let mortgage market -- strengths and weaknesses, 2009
• Market Size and Forecast
• Key points
• Demand for BTL finance falls
  • Figure 35: How demand for BTL changed+, Q2 2007-Q1 2009
• Landlords bunker down in the storm
  • Figure 36: How landlords are acting over their net investment in residential property (% of landlords), Q4 2004-Q4 2008
• Amounts outstanding continue to grow...
  • Figure 37: Number and value of buy-to-let mortgages outstanding, 1999-2008 (year-end)
• ...but new business levels are well down
• Implications and opportunities
• Remortgaging drives the market in 2008
  • Figure 38: The breakdown (%) of buy-to-let gross advances (value), by type of mortgage, 2002-08
• Forecast
  • Figure 39: Forecast of the value and volume of new buy-to-let sales, 2003-13
• Factors used in the forecast
• Market Share
• Key points
• A market in transition
  • Figure 40: Ten largest buy-to-let lenders, by the number of products on the market, January 2009
• A new market leader
  • Figure 41: Market share of the leading buy-to-let lender groups, by amounts outstanding, mid-2007 and mid-2008
  • Figure 42: Market share of the leading buy-to-let providers, by amounts outstanding, mid-2008
• Companies and Products
• Key points
• Major reduction in capacity
• Fixed deals the norm
  • Figure 43: Structure of BTL mortgages, January 2009
• APR related to period
  • Figure 44: The APR charged on BTL mortgages, January 2009
• Arrangement fees vary significantly
  • Figure 45: Quoted arrangement fees on a £120,000 BTL mortgage, by type of mortgage, January 2009
• Arrangement fee related to period mortgage runs
  • Figure 46: Quoted arrangement fees on a £120,000 BTL mortgage, by period of mortgage, January 2009
• Fees and maximum LTVs on the up
  • Figure 47: Trends on arrangement fees and maximum LTVs in secured lending, Q2 2007-Q1 2009
  • Figure 48: The percentage of mortgage products on the market, by LTV (%), January 2008 and January 2009
• Little product differentiation
  • Figure 49: The three main types of BTL mortgages available, January 2009
• Mini profiles of the largest buy-to-let lenders
• The Lloyds Banking Group
• Bradford & Bingley (Mortgage Express)
• Paragon Mortgages
• The Mortgage Works (Nationwide Specialist Lending)
• Bank of Ireland
• Northern Rock
• Capital Home Loans
• Brand Communication and Promotion
• Key points
• Mortgage adspend follows the market down
• Buy-to-let rollercoaster
  • Figure 50: Buy-to-let mortgage adspend (£000) and share of the mortgage adspend taken by buy-to-let, year to November 2004-08
• Buy-to-let providers focus their adspend on the press
• Implications and opportunities
• C&G the heaviest investor
  • Figure 51: The 25 largest investors in buy-to-let mortgage advertising, by advertiser, year to November 2004-08
• Channels to Market
• Key points
• The intermediary the prime channel to market
  • Figure 52: Distribution channels used by leading buy-to-let lenders, 2009
• The Consumer -- Property Ownership and Aspirations
• Key points
• Survey background
• Being a landlord is a niche activity
  • Figure 53: Property ownership and intentions to buy, January 2009
• Big rise in rental supply
  • Figure 54: The number of landlords, 2006-09
• Implications and opportunities
• Landlords tend to be affluent family adults
  • Figure 55: The ownership and intention to own a UK rental property by socio-economic group, lifestage, household income and ACORN group, January 2009
  • Figure 56: The ownership of a UK rental property, by Mintel' s Special Group, January 2009
• It' s a middle-aged thing
  • Figure 57: The ownership of a UK rental property, by age and age by socio-economic group, January 2009
• But like policemen, are landlords getting younger?
  • Figure 58: The ownership of a UK rental property and intention to buy, by age and age by socio-economic group, January 2009
• Implications and opportunities
• Digital media and broadsheets hit the mark
  • Figure 59: The ownership of a UK rental property and intention to buy, by technology usage, internet frequency, web use and newspaper readership, January 2009
• Implications and opportunities