UK Buy-to-let Mortgages 2007 (Segment Report)

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • The buy-to-let mortgage market reached a record high of £34.8 billion in 2006
    • The buy-to-let mortgage market grew impressively in 2006
      • The strength of the buy-to-let mortgage market over 2006 was also reflected in intermediaries' new business
  • A number of factors have driven the buy-to-let mortgage market upward
    • Sound macro-economic conditions have laid the foundation for a strong buy-to-let market
    • Moreover, other factors specific to the buy-to-let market have significantly impacted on gross lending
  • There are two major types of player in the buy-to-let mortgage market
  • On the lender side, specialist players continue to dominate the buy-to-let mortgage market
    • Competition has intensified as the number of buy-to-let lenders has increased
      • Increasing competition is being reflected in a number of areas
  • On the distribution side, intermediaries play a bigger role than lenders
    • The prevalence of specialist lenders in buy-to-let means that the intermediary channel is the dominant form of distribution
  • Under the Datamonitor View scenario, the buy-to-let mortgage market will reach £69.2 billion in gross advances in 2011
• Table of Contents
• Table of figures
• Table of tables
• An Introduction to the Buy-to-let Mortgage Market
  • The buy-to-let mortgage market reached a record high of £34.8 billion in 2006
    • The buy-to-let mortgage market grew impressively in 2006
      • The strength of the buy-to-let mortgage market over 2006 was also reflected in intermediaries' new business
    • The buy-to-let mortgage market was a major driver of the outstanding performance of the UK total mortgage market in 2006
      • The expansion of the buy-to-let mortgage market was faster than that of the self-certification mortgage market
      • The fact that the buy-to-let mortgage market has expanded significantly has led to some stating that buy-to-let is preventing first-time buyers from entering the property market
  • A number of factors have driven the buy-to-let mortgage market upward
    • Sound macro-economic conditions have laid the foundation for a strong buy-to-let market
      • A relatively strong UK economy has assisted in boosting the buy-to-let mortgage market
      • The base rate has remained relatively low despite successive increases
      • Unemployment has remained low for a number of years
      • Strong house price inflation has contributed to drive the buy-to-let mortgage market forward
    • Moreover, other factors specific to the buy-to-let market have significantly impacted on gross lending
      • The deregulation of the rental sector made property investment a more attractive proposition
      • Property is seen as an attractive long-term investment
      • Several factors are driving demand for private rented properties
  • Going forward, the buy-to-let mortgage market faces challenges
    • There are concerns that tighter regulations in the private rented sector are creating too much burden for landlords
      • Increased regulations are creating too much red tape and leading to higher costs for landlords
    • Are inexperienced landlords prepared enough to deal with unexpected costs, particularly in a rising interest rate environment?
      • Arrears and repossession levels are currently low in the buy-to-let mortgage sector
      • But how prepared are inexperienced investors for the costs involved with being a landlord?
• The Competitive Landscape of the UK Buy-to-let Mortgage Market
  • There are two major types of player in the buy-to-let mortgage market
  • On the lender side, specialist players continue to dominate the buy-to-let mortgage market
    • In terms of lender type, small building societies dominate in number
      • Banks came in second in terms of number of players
    • In terms of market share, specialist lenders still dominate the buy-to-let mortgage market
      • The top three buy-to-let mortgage lenders occupied 39.4 per cent of the market
    • Competition has intensified as the number of buy-to-let lenders has increased
      • The majority of buy-to-let mortgage intermediaries surveyed by Datamonitor stated that competition among lenders has intensified
      • Increasing competition is being reflected in a number of areas
    • A sub-prime buy-to-let market has emerged in recent years
      • The majority of intermediaries Datamonitor surveyed serve sub-prime customers in buy-to-let
      • Going forward, intermediaries believe that sub-prime buy-to-let will expand further
  • On the distribution side, intermediaries play a bigger role than lenders
    • The prevalence of specialist lenders in buy-to-let means that the intermediary channel is the dominant form of distribution
    • Given the importance of intermediaries in the buy-to-let sector, it is important for lenders to adapt their proposition to meet their needs
      • Speed of processing has become crucial in the intermediary channel for all mortgage markets
• Forecasting the Buy-to-let Mortgage Market
  • Three buy-to-let forecasting scenarios are presented
    • In addition, Datamonitor' s bespoke forecasting model considers drivers specific to buy-to-let
    • Under the Datamonitor View scenario, the buy-to-let mortgage market will reach £69.2 billion in gross advances in 2011
    • Under the Optimistic scenario, buy-to-let gross advances will grow impressively to reach £51.9 billion in 2011
    • Under the Pessimistic scenario, the buy-to-let mortgage market will feel the pinch but will fare better than the wider mortgage market
  • Conclusions
• APPENDIX
  • Supplementary data
    • An introduction to the buy-to-let mortgage market
    • The competitive landscape of the buy-to-let mortgage market
  • Definitions
    • Bank of England base rate
    • Balances outstanding
    • Buy-to-let mortgage
    • CAGR
    • CCJs
    • Gross advances
    • Mortgage intermediary
    • Non-standard and sub-prime
    • Professional landlords
    • Remortgaging
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Ranking of top ten buy-to-let mortgage lenders by gross advances, 2005 to 2006
    • Table 2: All top ten UK mortgage lenders have a presence in buy-to-let , May 2007
    • Table 3: List of buy-to-let mortgage lenders, March 2007
    • Table 4: Ranking of top ten buy-to-let mortgage lenders by gross advances, 2005 to 2006
    • Table 5: Buy-to-let gross advances and market share for the top eight buy-to-let lenders, 2006
    • Table 6: Maximum property portfolio for the top ten buy-to-let lenders, March 2006 and 2007
    • Table 7: Maximum LTV offered by the top ten buy-to-let lenders, March 2005 to 2007
    • Table 8: Maximum borrowing amount for the top ten buy-to-let lenders, March 2005 to 2007
    • Table 9: Average interest rate of top ten buy-to-let lenders and the base rate, March 2005 to 2007
    • Table 10: Forecast of buy-to-let gross advances under Datamonitor View scenario, 2006 to 2011f
    • Table 11: Forecast of buy-to-let gross advances under an Optimistic scenario, 2006 to 2011f
    • Table 12: Forecast of buy-to-let gross advances under a Pessimistic scenario, 2006 to 2011f
    • Table 13: Buy-to-let gross advances and number of loans, 1999 to 2006
    • Table 14: Buy-to-let gross advances market share, 1999 to 2006
    • Table 15: Indexed growth rate of buy-to-let and self-certification mortgages, 2002 to 2006
    • Table 16: Buy-to-let loans and first-time buyer loans, 2002 to 2006
    • Table 17: Annual house price growth on a quarterly basis, Q1 2003-Q4 2006
    • Table 18: Average size of a buy-to-let loan, 2002 to 2006
    • Table 19: Have you seen an increase in demand from first-time buy-to-let investors in 2006?, March 2007
    • Table 20: Have you seen an increase in demand from existing buy-to-let investors in 2006?, March 2007
    • Table 21: Quarterly change in Average Annual Rate of Return (Geared investment), Q1 2006 - Q4 2006
    • Table 22: Which of the following regions in the UK are the top 3 hot spots for BTL investors?, March 2007
    • Table 23: Migration inflow to the UK, 1996 to 2005
    • Table 24: In which way has competition among lenders intensified in the BTL sector?, March 2007
    • Table 25: What proportion of your BTL customers have an adverse credit story? March 2007
    • Table 26: In your opinion, have you seen an increase in demand for BTL from customers with an adverse credit story?, March 2007
    • Table 27: Please rate how important the following factors have been in your choice to use your number one lender more than any other, March 2007
  • List of Figures
    • Figure 1: The buy-to-let market saw a significant increase in both gross lending and number of loans in 2006, 1999 to 2006
    • Figure 2: The majority of mortgage intermediaries interviewed stated that they saw an increase in buy-to-let gross advances in 2006
    • Figure 3: Intensifying competition among lenders is being reflected in a number of areas, March 2007
    • Figure 4: Under the Datamonitor View scenario, buy-to-let gross advances will reach £45.4 billion in 2007
    • Figure 5: The buy-to-let market saw a significant increase in both gross lending and number of loans in 2006, 1999 to 2006
    • Figure 6: The majority of mortgage intermediaries interviewed stated that they saw an increase in buy-to-let gross advances in 2006
    • Figure 7: Buy-to-let gross advances accounted for 11.1 per cent of the UK mortgage market in 2006, 1999-2006
    • Figure 8: The buy-to-let mortgage sector has outperformed the self-certification mortgage market over the last five years, 2002 to 2006
    • Figure 9: The number of buy-to-let loans advanced in recent years has increased considerably whereas loans advanced to first-time buyers have fallen below previous levels, 2002-2006
    • Figure 10: Data from both Halifax and Nationwide highlights that house price growth picked up in 2006 after appearing to cool down , Q1 2003 - Q4 2006
    • Figure 11: The average size of a buy-to-let loan has increased over the years, 2002 to 2006
    • Figure 12: Demand for buy-to-let remains dominated by experienced investors, March 2007
    • Figure 13: Of the intermediaries stating that they have seen an increase in demand from first-time buy-to-let investors, a higher proportion stated that this increase was less than ten per cent, March 2007
    • Figure 14: 33.3 per cent of intermediaries who witnessed an increase in demand from existing investors in 2006 stated that this rise was between ten and twenty per cent, March 2007
    • Figure 15: Average rates of return fell in H2 2006 partially as a result of increases in the base rate, Q1 2006 to Q4 2006
    • Figure 16: Prime Central London and the North West are the top two regions for buy-to-let investors, March 2007
    • Figure 17: Roughly 565,000 individuals migrated into the UK in 2005, a 77.7 per cent increase over 1996 level, 1996 to 2005
    • Figure 18: The majority of intermediaries interviewed by Datamonitor believed that the buy-to-let mortgage market will grow steadily in the future, March 2007
    • Figure 19: The structure of the buy-to-let mortgage market, June 2007
    • Figure 20: Small building societies dominate in number in the buy-to-let mortgage sector, March 2007
    • Figure 21: The top three lenders accounted for 39.4 per cent of buy-to-let gross advances in 2006
    • Figure 22: 89.8 per cent of intermediaries surveyed stated that competition among lenders has intensified, February 2007
    • Figure 23: Intensifying competition among lenders is being reflected in a number of areas, March 2007
    • Figure 24: Despite a rising base rate in 2007, the differential between the average interest rate on a buy-to-let mortgage and the base rate has fallen consistently, March 2005 to 2007
    • Figure 25: The proportion of intermediaries' customers accounted for by the sub-prime segment in buy-to-let is small, March 2007
    • Figure 26: The majority of intermediaries who saw an increase in sub-prime buy-to-let customers recorded less than a ten per cent increase, March 2007
    • Figure 27: 61.7 per cent of intermediaries surveyed believe that sub-prime buy-to-let will grow in the future, March 2007
    • Figure 28: 83.7 per cent of intermediaries consider competitive pricing as being very important when choosing their number one player, March 2007
    • Figure 29: Under the Datamonitor View scenario, buy-to-let gross advances will reach £45.4 billion in 2007
    • Figure 30: Under the Optimistic scenario, buy-to-let gross advances will occupy a 19.9 per cent share of total mortgage gross advances in 2011
    • Figure 31: Under the Pessimistic scenario, buy-to-let gross advances will contract in 2007 and 2008 but will still fare better than the wider mortgage market