Buy-to-Let - UK - March 2008

Table of Contents

• Issues in the Market
• Market evolution
• Key issues
• Market definitions
• Abbreviations
• Market in Brief
• Strong market momentum
• 2008 a more difficult year but longer-term prospects are generally good
• The social imperative
• Market environment
• Competition in a state of flux
• Product innovation continues but there is some retrenchment
• Heavy reliance on intermediaries
• Buy-to-let advertising activity more than doubles in 2007
• Mintel' s consumer research findings: property ownership and aspirations
• Who are UK landlords and what do they need?
• Attitudes towards property investment are largely positive
• Property investment and property ownership clusters
• Large untapped market potential
• Broader Market Environment
• Key points
• Strong demand for rented accommodation
  • Figure 1: Number of households in Great Britain (000) and average household size (persons per household), 1976-2011
• Implications
  • Figure 2: Number of households in England by type (000), 2004-11
• Implications and opportunities
• Student population continues to expand
• Implications and opportunities
• Migration trends
  • Figure 3: Net migration flow into the UK (000), 1991-2006
• Implications and opportunities
• Space in the rented sector
• Technologically -- Improving the flow of information
• Economic backdrop
• The global credit crunch
  • Figure 4: Phases of the 2007 global credit crunch crisis
• Implications and opportunities
• The UK sub-prime market -- possible impact on buy-to-let
• Implications and opportunities
• But the cost of borrowing likely to decline over 2008
  • Figure 5: End month weighted average interest rate, standard variable mortgage, banks & building societies, January 2000-December 2007
• Inflationary pressures under control
  • Figure 6: Interest rates, CPI and GDP projections, Q4 2007-Q4 2009
• Outlook and implications for buy-to-let
• Internal Market Environment
• Key points
• The renaissance of the privately rented sector
  • Figure 7: Total number of UK private rented dwellings (million) and the share of all dwellings accounted for by private rentals (%), 1981-2007+
• A nation of homeowners
  • Figure 8: Tenure structure of dwellings (millions of dwellings and % of total), 1981-2007+
• Buy-to-let accounts for a rising proportion of private rentals
  • Figure 9: Share of private rental dwelling being purchased with BTL mortgages, 1998-2007
• House price inflation -- driver and drawback
  • Figure 10: UK average house price index (Feb 2002 = 100), Feb 2002-Dec 2007
  • Figure 11: The average value of rented houses and flats -- all regions (£000), 2007
• Regional house price variation
  • Figure 12: Index of house prices by region, October 2007 (Feb 2002 = 100)
  • Figure 13: The average value of rented houses and flats (£000), 2007
• Average rents have grown
  • Figure 14: Private sector rents (£ per month), 1994/95-2006/07
• Rental demand strong but returns falling
  • Figure 15: Rental returns (% yield) to landlords, Q3 2003-Q4 2007
• Location, Location, Location
  • Figure 16: Buy-to-let annual return on investment, by region, 2006-07
• Implications and opportunities
• Profile of residential investment landlords: investment motive
  • Figure 17: Landlords viewing BTL as a form of disciplined savings, 2007
  • Figure 18: How long BTL landlords have been investing in property (%*), July 2007
• Implications and opportunities
• From buying to marking time
  • Figure 19: How landlord are acting over their net investment in residential property (% of landlords), Q4 2004-Q4 2007
• Most investors have fairly small portfolios...
  • Figure 20: Number of rented residential properties in portfolio, November 2007
• A safer haven in a credit storm...
  • Figure 21: Buy-to-let mortgage arrears, maximum LTV and minimum rental cover, 1999-2006
• Increasing regulation is a cause for concern for landlords
• Tenancy Deposit Scheme
  • Figure 22: Tenancy deposit schemes joined by landlords, November 2007
• Competitive Context
• Key points
• Buy to let property: only one source of "passive" income
  • Figure 23: Sources of passive income, June 2007
• Buy to let competes in the property investment market
• The emotional pull of bricks and mortar
  • Figure 24: Net worth of the household sector, 2000, 2002, 2004, 2006 and 2007
• Implications
• The search for control
• People are fundamentally risk averse
• The Footsie remains volatile
  • Figure 25: Annual change in the FTSE All Share Index compared with annual house price inflation and the return on bank and building society deposits, January 2004-November 2007
• Strengths and Weaknesses
  • Figure 26: Buy-to-let mortgage market -- SWOT analysis, 2008
• Market Size and Forecast
• Key points
• A fundamentally strong and dynamic market
  • Figure 27: Number and value of buy-to-let mortgages outstanding, 1999-2007 (year-end)
• New business is booming
  • Figure 28: Number and value of buy-to-let sales, 1999-2007
• Boom or bust -- or somewhere in between?
• Wait and see strategy
• Those at the coalface are still upbeat...
• ...but major supply side concerns
• Remortgaging drives the market in 2008
  • Figure 29: Buy-to-let gross advances, 2005-08
• Opportunities for expansion
• Forecast
• Market should weather the storm
  • Figure 30: Number and value of buy-to-let mortgages outstanding, 2003-2012 (year-end)
• But growth will be slower
  • Figure 31: Number and value of buy-to-let sales, 2003-2012
• Factors incorporated
• Market Share
• Key points
• A big three lead the market
  • Figure 32: Ten largest buy-to-let lenders by balances outstanding and gross advances, 2007
• A stable market for outstanding business but 2007 brings in new uncertainty
• A jostle for market position in terms of new business
• Implications of the credit squeeze
• Top five account for over half of new buy-to-let business in 2006/07
  • Figure 33: Market share of top five buy-to-let lender groups, by gross advances, year ending September 2007
  • Figure 34: Market share of top five buy-to-let lenders, by gross advances, year ending September 2007
• Companies and Products
• Key points
• Little product differentiation
• Profiles of the largest buy-to-let lenders
• Mortgage Express
  • Figure 35: Bradford & Bingley' s buy-to-let mortgage business, September 2007 and December 2006
• Birmingham Midshires
• Paragon
  • Figure 36: Paragon New Mortgage Business, year ending 30th September 2007
• Nationwide Building Society (UCB Home Loans, Mortgage Works)
  • Figure 37: Nationwide buy-to-let mortgages outstanding, 2006-07
• Northern Rock
  • Figure 38: Northern Rock buy-to-let mortgages outstanding and gross advances, 2006-07
• GMAC-RFC
• Other major providers
• Cheltenham & Gloucester
• Capital Home Loans
• Bristol & West
• Brand Communication and Promotion
• Key points
• Overall mortgage ad spend declines in 2006...
  • Figure 39: Mortgage adspend, by category, 2003-07
• Implications and opportunities
  • Figure 40: The change in mortgage adspend, by category, 2006-07
• Investment in promoting buy-to-let on the up
  • Figure 41: Buy-to-let mortgage adspend (£000) and share of the mortgage adspend taken by buy-to-let, 2003-07
• Buy-to-let providers focus their ad spend on the press
  • Figure 42: Buy-to-let mortgage adspend, by channel, 2003-07
• Implications and opportunities
• C&G and Bradford & Bingley the heaviest investors
  • Figure 43: Buy-to-let mortgage adspend, by advertiser, 2003-07
• Channels to Market
• Key points
• The distribution mix: intermediaries dominate
  • Figure 44: Main channels to market -- illustration, 2008
• Buy-to-let a key business area for intermediaries
• Web support
• Intermediaries have a prominent presence in the buy-to-let mortgage market
  • Figure 45: Distribution channels used by the top ten buy-to-let lenders, by gross advances, in 2008
• The Consumer -- Property Ownership and Aspirations
• Key points
• Survey background
• Only 6% of homeowners have a second property
  • Figure 46: Property ownership and intentions to buy, December 2007
• A million UK landlords
  • Figure 47: Size of the second-property-owner population, December 2006-December 2007
• Overseas property more popular than UK property
  • Figure 48: Size of the prospective target market for second properties, December 2006-December 2007
• Implications and opportunities
• Mortgage holders are more likely to invest in buy-to-let than are outright owners
  • Figure 49: Second property ownership and intentions to buy, by tenure, December 2007
• Implications and opportunities
• Affluence: the key determinant of second homeownership
  • Figure 50: Second property ownership and intentions to buy, by socio-economic group, ACORN category and household income, December 2007
• Implications and opportunities
• Is it a mid-life thing?
  • Figure 51: Second property ownership and intentions to buy, by gender, age and TV region, December 2007
• Implications and opportunities
• Regional hotspots
• Family and third agers lead the way
  • Figure 52: Penetration of second property owners and prospective targets, by marital status, lifestage, Special Groups and working status, December 2007
• The press and Internet work in co-operation to reach second homeowners
  • Figure 53: Demographic profile of second property owners and prospective targets -- part 3, December 2006
• Implications and opportunities
• The Consumer -- UK Landlords
• Key points
• Context
• Landlords are similar to second homeowners: middle aged and wealthy
  • Figure 54: Penetration of landlords in the UK population by age, gender, socio-economic group, ACORN group and household income, December 2007
• Pre-family and no-family adults are important landlords
  • Figure 55: Penetration of landlords in the UK population, by marital status, lifestage and Special Groups, December 2007
• Implications and opportunities
• Only a small proportion of landlords are buy-to-let landlords
  • Figure 56: Landlord ownership of buy-to-let mortgages, December 2007
• Implications and opportunities
• Landlords take out a narrower range of mortgages compared with other property owners
  • Figure 57: Mortgage ownership, by type of property owner, December 2007
• High proportion of landlords are self-financed
• Landlords like flexibility
• Desire for flexibility
• Flexibility and certainty drive the buy decision
  • Figure 58: The mortgage options preferred by landlords, December 2007
• Implications and opportunities