Investing in Property - Still Safe as Houses? - UK - October 2007

Table of Contents

• Issues in the Market
• Key Issues
• Abbreviations
• Insights and Opportunities
• Hitting the mid-market
• If at first you do succeed then...don' t try again?
• REIT place, wrong time?
• Hedging their bets
• Market in Brief
• Property dominates asset holdings...
• ...but investment property remains niche
  • Figure 1: Investment ownership, June 2007
• Buy-to-let leads the way...
  • Figure 2: Value of outstanding buy-to-let mortgages, 2000-07
• ...although property funds have also had an impact
• Rapid price increases drive interest in property investment
  • Figure 3: Average mix-adjusted house prices in the UK, 1992-2007
• Still room for growth
• First safety -- and then property...
• ...but for many, a house remains ' just a home'
• Asset Ownership
• Key point summary
• Property dominates asset ownership
  • Figure 4: Ownership of selected financial and non-financial assets, UK household sector, 2006
• Lurching from boom to boom?
  • Figure 5: Composition of UK household sector' s net wealth, 1996-2006
• PPR, not BTL...
  • Figure 6: Investment ownership, June 2007
• ...but property need not be rented out to be an investment
• Seven in ten properties are owner-occupied
  • Figure 7: Total number of UK dwellings, by tenure, 1991-2006
• The Property Market -- Background
• Key point summary
• A decade-long boom
  • Figure 8: Average mix-adjusted house prices in the UK, 1992-2007
• London and the South lead the way
  • Figure 9: Average mix-adjusted house prices, by region, year-end 2006
• Northern Ireland benefits from the peace dividend
  • Figure 10: Average mix-adjusted house prices in the UK, by region, 1999-2006
• Transactions on an upwards trend
  • Figure 11: Number of property transactions in England and Wales, 1995-2007
• Predictions of a crash prove unfounded...
• ...as yet
• Broader Market Environment
• Key point summary
• Changing household structure...
  • Figure 12: Number of one-person households, as a proportion of all households, 1991-2012
• ...should drive demand for rental properties
• Stockmarket volatility pushes investors into property...
  • Figure 13: Relative performance of the housing and stock markets, 1985-2007
• ...despite long-term returns
• Low rates have favoured property investment...
  • Figure 14: The Bank of England' s base rate, November 1990-July 2007
• ...and the effective rate of interest could continue to do so
• Internal Market Environment
• Key point summary
• The credit crunch hits home
• Turmoil in the banking sector
• Lending criteria expected to tighten further...
• ...and events increase the potential of a housing slowdown
• Rental yields remain steady...
  • Figure 15: Average rental yields -- England and Wales, May 2003-July 2007
• ...but not much above base rates
• Affordability becomes a hot topic...
• ...and property investors bear the brunt of criticism
• Investigation launched into the impact of BTL...
• ...and legislation adds to landlords' admin costs
• New opportunities for indirect property investment
• Strict limits on REIT eligibility...
• ...but significant advantages for investors
• Potential for residential REITs -- but concerns over the structure
• Scheme yet to live up to the hype
• Competitive Context
• Key point summary
• Varied role of property increases potential competitors...
• ...but also means that it stands alone
• Alternative retirement saving strategies
  • Figure 16: Summary of retirement funding strategies
• Pensions the key competitor...
  • Figure 17: Individual pension sales, 2001-06
• ...with A-day boosting long-term prospects
• SIPPs -- giving control to the investor
• A resurgence in equity ISA subscriptions...
• Figure 18: New ISA subscriptions, 2001/02-2006/07
• ...and strong sales of collective investments
  • Figure 19: Gross unit trust/OEIC sales, 1997-2006
• Strengths and Weaknesses in the Market
• Strengths
• Weaknesses
• Market Size -- Mortgages
• Key point summary
• A booming market for mortgages
  • Figure 20: Gross mortgage lending, by type of advance, 1997-2006
• Investment -- or home?
• Do remortgaging and MEW signal a shift in attitudes?
  • Figure 21: Housing equity withdrawal, 2000-07
• Market Size -- Buy-to-Let
• Key point summary
• Buy-to-let approaching a tenth of outstanding mortgages...
  • Figure 22: Number and value of buy-to-let mortgages outstanding, 2000-07 (H1)
• ...and taking a growing share of new lending
  • Figure 23: Number and value of buy-to-let sales, 2000-07
• Prospects uncertain for BTL investors...
• ...with interest rates potentially crucial
• Market Size -- Indirect Property Investment
• Key point summary
• Range of investment vehicles expanding
• Property funds -- 2006' s success story...
• ...although performance is starting to suffer
• Property companies taking advantage of REIT status
• Market capitalisation tops £30 billion...
• ...but institutional shareholders dominate
• Total private holdings dwarfed by other forms of property investment
• Companies and Products
• Key point summary
• Mortgages
• The former building societies still strong
  • Figure 24: Leading providers in the mortgage market, 2006
• Will Northern Rock trigger a flight to quality?
• Subsidiary brands dominate in the BTL market
  • Figure 25: Leading providers in the buy-to-let market, 2006
• Insulating -- or isolating?
• Indirect property investment
• A rush to launch property funds...
  • Figure 26: Specialist property funds operating in the UK, September 2007
• ...although the flow of REIT conversions has slowed
  • Figure 27: UK-based REITs, September 2007
• The Consumer -- Investment Portfolio
• Key point summary
• Property still a minority investment...
  • Figure 28: Investment ownership, June 2007
• Implications and opportunities
• Diversification an issue?
  • Figure 29: Number of different asset classes held, June 2007
• Implications and opportunities
• ...but for ABs, it' s a key part of investment planning
  • Figure 30: Investment ownership, by gender and socio-economic group, June 2007
• Implications and opportunities
• Asset ownership starts low...
  • Figure 31: Investment ownership, by age, June 2007
• ...and peaks early
• Implications and opportunities
• Lifestage is key -- although less so when it comes to cash
  • Figure 32: Investment ownership, by lifestage, June 2007
• Implications and opportunities
• ABC1 third age -- driving the BTL market
• Implications and opportunities
• A three-tier property market?
  • Figure 33: Investment ownership, by household income, June 2007
• Renting -- but still investing
• Implications and opportunities
• Londoners lead the way in the BTL market
• Online the natural home for property investment firms...
• Implications and opportunities
• ...and broadsheets the natural home for financial services advertising
• Implications and opportunities
• The Consumer -- Future Intentions and Expectations
• Key point summary
• More than one in five thinking about making a property investment
  • Figure 34: Agreement with the statement ' I am seriously considering buying an investment property in the next few years' , June 2007
• Ready to take on another mortgage?
  • Figure 35: Agreement with the statement ' I am seriously considering buying an investment property in the next few years' , by household tenure, June 2007
• Implications and opportunities
• The affluent look to diversify
• Implications and opportunities
• The boom generation
  • Figure 36: Agreement with the statement ' I am seriously considering buying an investment property in the next few years' , by lifestage, June 2007
• Implications and opportunities
• London still the home of the property investor
• Property investors looking to expand their holdings
  • Figure 37: Investment holdings, by agreement with the statement ' I am seriously considering buying an investment property in the next few years' , June 2007
• Bullish, despite interest rate rises
  • Figure 38: House price expectations, June 2007
• Implications and opportunities
• Expectations in opposition to exposure
  • Figure 39: House price expectations, by housing tenure, June 2007
• Implications and opportunities
• Pessimism among those who can best afford to invest...
  • Figure 40: House price expectation index, by gender, age and socio-economic group, June 2007
• Implications and opportunities
• ...but falling prices need not lead to falling investment
  • Figure 41: House price expectations, by agreement with the statement ' I am seriously considering buying an investment property in the next few years' , June 2007
• Opportunities and Insights
• The Consumer -- Property as Investment
• Key point summary
• Property or equities?
  • Figure 42: Preferred savings vehicles, June 2007
• 25-44-year-olds looking to property
  • Figure 43: Preferred savings vehicles, by age, June 2007
• Affluent more likely to favour equities -- but property still wins out
  • Figure 44: Preferred savings vehicles, by socio-economic group, June 2007
• A pay cheque, rather than a home?
  • Figure 45: Agreement with the statement ' I see owning property largely as a way of making money' , June 2007
• Homemakers? Or investors?
  • Figure 46: Agreement with the statement ' I see owning property largely as a way of making money' , by gender, age and socio-economic group, June 2007
• A fundamental change in attitudes?
• Middle income earners and the property bank...
  • Figure 47: Agreement with the statement ' I see owning property largely as a way of making money' , by household income, June 2007
• Sources of advice
• Banks lead the way
  • Figure 48: Preferred sources of investment mortgages, June 2007
• The benefits of age...
  • Figure 49: Preferred sources of investment mortgages, by gender, age, socio-economic group, lifestage, household income, tenure and daily newspaper readership, June 2007
• ...and scope for IFA involvement
  • Figure 50: Investment ownership, by preferred sources of investment mortgages, June 2007
• The Consumer -- Attitudes towards Property Investment
• Key point summary
• A house is just a home -- but prices still matter
  • Figure 51: Attitudes towards property investment, June 2007
• Sell to rent -- a minority approach
• Altruism at the top of the ladder?
  • Figure 52: Attitudes towards property investment, June 2007
• Mortgagors -- the key market for property firms
• ABs ditch pensions for property
• Pension providers facing a fight...
• ...but could REITs be the answer?
• The clash of the generations...
• ...and a chance for younger people to keep up with the market
• Pushing ahead -- despite fears over interest rates
  • Figure 53: Attitudes towards property investment, by agreement with the statement ' I am seriously considering buying an investment property in the next few years' , June 2007
• Key Targets and Future Prospects
• Key point summary
• Assessing the potential
  • Figure 54: Range of propensity to invest, June 2007
• Sorting the wheat from the chaff
  • Figure 55: Potential consumer base, by gender, age, socio-economic group, lifestage and household income, June 2007
• Background demographics unfavourable
  • Figure 56: Impact of demographic changes on potential consumer base, 2006 and 2012
• Modelling the market
  • Figure 57: Level of deterrent, 2007
• Calculating the size of the potential consumer base
  • Figure 58: Anticipated take-up, by target group, 2007
• A potential of 5 million investors
  • Figure 59: Make-up of potential market, 2007
• Barriers to growth
  • Figure 60: Particular barriers to the potential market, 2007
• Interest rates key determinant
• Interest rate scenarios
  • Figure 61: Interest rate scenarios' effect on future potential market, 2007 and 2012
• Appendix
• Asset holding and repertoire
  • Figure 62: Type of asset held, by number of assets, June 2007
  • Figure 63: Investment ownership, by age, June 2007
  • Figure 64: Investment ownership, by gender and socio-economic group, June 2007
  • Figure 65: Investment ownership, by Mintel' s Special Groups and working status, June 2007
  • Figure 66: Investment ownership, by household income and housing tenure, June 2007
  • Figure 67: Investment ownership, by region, June 2007
  • Figure 68: Investment ownership, by media usage, June 2007
  • Figure 69: Investment ownership, by commercial TV viwing and supermarket usage, June 2007
• Potential property purchases
  • Figure 70: Agreement with the statement ' I am seriously considering buying an investment property in the next few years' , by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, June 2007
• House price expectations
  • Figure 71: House price expectations, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, June 2007
• Preferred savings vehicle
  • Figure 72: Preferred savings vehicles, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage and age/socio-economic group, June 2007
  • Figure 73: Agreement with the statement ' I see owning property largely as a way of making money' , by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage and age/socio-economic group, June 2007
• Sources of advice
  • Figure 74: Agreement with the statement ' I see owning property largely as a way of making money' , by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage and age/socio-economic group, June 2007
• Attitudes towards property investment
  • Figure 75: Attitudes towards property investment, by gender and socio-economic group, June 2007
  • Figure 76: Attitudes towards property investment, by age, June 2007
  • Figure 77: Attitudes towards property investment, by lifestage and Mintel' s Special Groups, June 2007
  • Figure 78: Attitudes towards property investment, by household income, June 2007
  • Figure 79: Attitudes towards property investment, by region, June 2007
  • Figure 80: Attitudes towards property investment, by ACORN group, June 2007
  • Figure 81: Attitudes towards property investment, by tenure and media usage, June 2007
  • Figure 82: Attitudes towards property investment, by Internet usage and newspaper readership, June 2007
  • Figure 83: Attitudes towards property investment, by commercial TV viewing and supermarket usage, June 2007