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Buy to Let - Investing in Property - UK - March 2013

“British people are being forced to change their attitudes towards renting. Tough credit conditions mean that home ownership is far from guaranteed for many. Consequently, it is important that landlords and lenders do not take tenant demand for granted and instead must strive to ensure that the country’s changing living needs are being met with both a supply of suitable properties and ample industry regulation.”

– Stephanie Absolom – Financial Services Analyst
Some questions answered in this report include:

  • Is the buy-to-let market set to be swamped by new investors?
  • Is the UK moving towards a rental dominant market?
  • Will we see the introduction of regulation in the buy-to-let market?
  • Is the build-to-let market set to experience a boom?
  • Is buy-to-let set to become a vehicle for supporting retirement income?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Value of new buy-to-let mortgage advances is expected to grow
              • Figure 1: Forecast for the total value of new buy-to-let mortgage advances, 2007-17
            • The buy-to-let market is heavily intermediated
              • Market factors
                • Funding for Lending supports buy-to-let growth
                  • Demand for buy-to-let on the up
                    • Build-to-let could help support changing housing needs
                      • Housing market showing signs of improvement
                        • Figure 2: Annual percentage change in gross advances – Buy-to-let versus total mortgage market, 2002-12
                      • Buy-to-let market is appealing
                        • Drivers for growth in the buy-to-let market
                          • Returns on buy-to-let investments
                            • Companies products and innovations
                              • Lloyds Banking Group retains largest share of the buy-to-let market
                                • Figure 3: Buy-to-let amounts outstanding – selected lenders only, 2011/12
                              • Mortgages for Business launches buy-to-let app
                                • Online services for intermediaries launched by Paragon
                                  • The consumer
                                    • Just over one in ten are landlords
                                      • Figure 4: Buy-to-let ownership, November 2012
                                    • Nearly two fifths of landlords have entered the market in the last one to three years
                                      • Figure 5: Length of time as a landlord, November 2012
                                    • Rental income is the top motivator for buy-to-let ownership
                                      • Figure 6: Attitudes to buy-to-let property, November 2012
                                    • Investing in property deemed safer than stocks and shares
                                      • Figure 7: Views about investing in buy-to-let property, November 2012
                                    • What we think
                                    • Issues in the Market

                                        • Is the buy-to-let market set to be swamped by new investors?
                                          • Is the UK moving towards a rental dominant market?
                                            • Will we see the introduction of regulation in the buy-to-let market?
                                              • Is the build-to-let market set to experience a boom?
                                                • Is buy-to-let set to become a vehicle for supporting retirement income?
                                                • Trend Application

                                                  • Retirement income concerns could be solved by buy-to-let
                                                    • Making life easier for landlords
                                                      • Young people could invest in a rental property before their own home
                                                      • Market Drivers

                                                        • Key points
                                                          • Continued increase in privately rented dwellings
                                                            • Figure 8: Total number of UK dwellings, by tenure, 1997-2011
                                                          • Buy-to-let gross advances show strength of the market
                                                            • Figure 9: Annual percentage change in gross advances – Buy-to-let versus total mortgage market, 2002-12
                                                          • Demand for buy-to-let increases in Q4 2012
                                                            • Figure 10: Demand for buy-to-let and prime lending (house purchase), Q1 2009-Q4 2012
                                                          • Funding for Lending driving landlord ownership
                                                            • Low interest rates make buy-to-let an attractive prospect
                                                              • Figure 11: Bank of England base rate, three month (monthly average) Sterling LIBOR and effective rate on new mortgages, January 2006-December 2012
                                                            • Buy-to-let property must match tenant needs
                                                              • Figure 12: UK households, by size, 2007-12
                                                            • Expected increase in migration trends will drive buy-to-let sector
                                                              • Figure 13: Long-term international migration flows, 2001-11 (year end)
                                                            • Build-to-let initiative launched by government
                                                              • Property seen as a safer investment option than the stock market
                                                                • Figure 14: Views about buy-to-let property, November 2012
                                                              • Student numbers remain stable – for now
                                                                • Figure 15: Number of students in Further and Higher Education, 2005/06-2011/12
                                                              • Benefit cap could impact social housing funding
                                                              • Buy-to-let Market Overview

                                                                • Key points
                                                                  • Number of buy-to-let mortgages decreases…
                                                                    • Figure 16: Buy-to-let product availability, February 2010-13
                                                                  • ….as do average buy-to-let interest rates
                                                                    • Figure 17: Buy-to-let average interest rate, February 2010-13
                                                                  • Buy-to-let arrears rates decline for third consecutive year
                                                                    • Figure 18: Percentage of outstanding loans three or more months in arrears – buy-to-let and total mortgage market, 2007-12
                                                                  • Repossession rates increase slightly in the buy-to-let market
                                                                    • Figure 19: Repossession rates for residential mortgages and buy-to-let mortgages, 2010-12
                                                                  • Rented property prices are steadily climbing
                                                                    • Figure 20: Average value of rented houses vs. rented flats, Q1 2008-Q3 2012
                                                                  • Geared investments produce higher returns than cash acquisitions
                                                                    • Figure 21: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q1 2008-Q3 2012
                                                                  • Rental yield – it’s all about location, location, location
                                                                    • Figure 22: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q2 2012
                                                                • SWOT Analysis

                                                                    • Figure 23: Buy-to- let SWOT analysis, 2013
                                                                • Who’s Innovating?

                                                                  • Key points
                                                                    • Landlords craving innovation
                                                                      • Buy-to-let app
                                                                        • Paragon launches buy-to-let online service for intermediaries
                                                                          • The Buy to Let Business launches a buy-to-let mortgage club
                                                                          • Market Size and Forecast

                                                                            • Key points
                                                                              • Increase in number and value of outstanding loans
                                                                                • Figure 24: Number and value of buy-to-let mortgages outstanding, 2001-12
                                                                              • Growth in the buy-to-let market continues, but is more subdued
                                                                                • Figure 25: Volume and value of new buy-to-let mortgages, 2002-12
                                                                              • Value of new buy-to-let mortgage advances expected to grow
                                                                                • Figure 26: Forecast for the total value of new buy-to-let mortgage advances, 2007-17
                                                                                • Figure 27: Forecast for total value of new buy-to-let mortgage advances at current and constant prices, 2007-17
                                                                              • Forecast methodology
                                                                              • Market Share

                                                                                • Key points
                                                                                  • Lloyds Banking Group and Nationwide account for 42% of BTL balances
                                                                                    • Figure 28: Buy-to-let amounts outstanding – selected lenders only, 2011 and 2012
                                                                                  • Lenders move to strengthen their positions
                                                                                    • Nationwide supporting the buy-to-let and traditional mortgage markets
                                                                                    • Companies and Products

                                                                                      • Lloyds Banking Group
                                                                                        • Nationwide
                                                                                          • Paragon Group
                                                                                          • Brand Communication and Promotion

                                                                                            • Key points
                                                                                              • Buy-to-let adspend sees steady increase as property market recovers
                                                                                                • Figure 29: Total advertising expenditure on buy-to-let/ let-to-buy mortgage products, 2008-12
                                                                                              • BM Solutions is the biggest advertising spender
                                                                                                • Figure 30: Adspend on buy-to-let/let-to-buy mortgage products, by buy-to-let advertisers, 2011-12
                                                                                              • A note on adspend
                                                                                              • Channels to Market

                                                                                                • Key points
                                                                                                  • The mortgage market is split between direct and intermediary channels
                                                                                                    • Figure 31: Proportional distribution of regulated mortgage sales – total market, by channel, 2007/08-2011/12
                                                                                                  • Intermediated distribution is key in the buy-to-let market
                                                                                                    • Figure 32: Distribution channels used by selected buy-to-let lenders, 2012
                                                                                                  • Proc fees cause concern in the buy-to-let market
                                                                                                  • Buy-to-Let Ownership

                                                                                                    • Key points
                                                                                                      • Some 11% of adults are landlords
                                                                                                        • Figure 33: Buy-to-let ownership, November 2012
                                                                                                      • Nearly 80% of consumers believe house prices are unrealistic for FTBs
                                                                                                        • Figure 34: Agreement with statements about buying and owning property, December 2012
                                                                                                      • Buy-to-let market can offer retirement support for the self-employed
                                                                                                        • Affluent investors well suited to buy-to-let
                                                                                                          • Figure 35: Buy-to-let ownership, by gross annual household income and financial situation, November 2012
                                                                                                      • Buy-to-let Landlord Tenure

                                                                                                        • Key points
                                                                                                          • Figure 36: Length of time as a landlord, November 2012
                                                                                                        • Recent landlords shunning buy-to-let mortgages
                                                                                                          • Figure 37: Buy-to-let ownership, by length of time as a landlord, November 2012
                                                                                                      • Attitudes Towards Investing in Buy-to-Let Property

                                                                                                        • Key points
                                                                                                          • Generating rental income is the key selling point for buy-to-let ownership
                                                                                                            • Figure 38: Attitudes to buy-to-let property, November 2012
                                                                                                          • More experienced landlords looking for rental income
                                                                                                            • Figure 39: Attitudes to buy-to-let property, by length of time as a landlord, November 2012
                                                                                                          • Older people look to buy-to-let for rental income
                                                                                                            • Figure 40: Attitudes to buy-to-let property, by age, November 2012
                                                                                                        • Views About Investing in Buy-to-Let Property

                                                                                                          • Key points
                                                                                                            • Property viewed as a safer investment than the stock market
                                                                                                              • Figure 41: Views about investing in buy-to-let property, November 2012
                                                                                                            • Expectations of property price growth encourage property investment
                                                                                                              • Figure 42: Expected house-price movement over the next year, December 2012
                                                                                                            • The industry must protect its reputation
                                                                                                              • Concerns about investing in equities may encourage new landlords
                                                                                                                • Figure 43: Buy-to-let ownership, by agreement with the statement: ‘Investing in property is safer than buying stocks and shares’, October 2012
                                                                                                              • BTL attracts those concerned about saving in a traditional pension
                                                                                                                • Figure 44: Buy-to-let ownership, by agreement with the statement: ‘I’d prefer to invest in a rental property than in a pension’, October 2012
                                                                                                              • 25-34-year-olds most interested in BTL as a pension alternative
                                                                                                                • Figure 45: Agreement with the statements: ‘I’d prefer to invest in a rental property than in a pension’, by age, November 2012
                                                                                                              • Self-employed prefer property to pensions
                                                                                                                • Figure 46: Agreement with the statements: ‘I’d prefer to invest in a rental property than in a pension’, by working status, November 2012
                                                                                                            • Targeting Opportunities

                                                                                                              • Key points
                                                                                                                • Self-Preservers form the largest target group
                                                                                                                  • Figure 47: Target groups, November 2012
                                                                                                                • Self-Preservers
                                                                                                                  • Traditionalists
                                                                                                                    • Keen- but Concerned
                                                                                                                      • Figure 48: Views about buy-to-let property, by length of time as a landlord, November 2012
                                                                                                                    • Traditionalists rule out buy-to-let
                                                                                                                      • Figure 49: Buy-to-let ownership, by target groups, November 2012
                                                                                                                    • Self-preservers are chasing rental income
                                                                                                                      • Figure 50: Attitudes to buy-to-let property, by target groups, November 2012
                                                                                                                  • Appendix – Market Size

                                                                                                                      • Figure 51: Best- and worst-case forecasts for the value of new buy-to-let mortgage advances, 2012-17
                                                                                                                  • Appendix – Buy-to-Let Ownership

                                                                                                                      • Figure 52: Buy-to-let ownership, by demographics, November 2012
                                                                                                                  • Appendix – Attitudes Towards Investing in Buy-to-Let Property

                                                                                                                      • Figure 53: Attitudes to buy-to-let property, by demographics, November 2012
                                                                                                                  • Appendix – Views About Investing in Buy-to-Let Property

                                                                                                                      • Figure 54: Agreement with the statements: ‘Investing in property is safer than buying stocks and shares’ and ‘I’d prefer to invest in a rental property than in a pension’, by demographics, November 2012
                                                                                                                      • Figure 55: Agreement with the statements: ‘There’s too much hassle involved to make it worth being a landlord’ and ‘Property prices are too high for new landlords to make a profit’, by demographics, November 2012
                                                                                                                      • Figure 56: Agreement with the statement: ‘Landlords are taking advantage of people who cannot afford to buy their own home’, by demographics, November 2012
                                                                                                                  • Appendix – Targeting Opportunities

                                                                                                                      • Figure 57: Target groups, by demographics, November 2012

                                                                                                                  Companies Covered

                                                                                                                  • Birmingham Midshires
                                                                                                                  • HBOS plc (Halifax Bank of Scotland)
                                                                                                                  • Lloyds Banking Group
                                                                                                                  • Lloyds TSB Insurance
                                                                                                                  • Macquarie Group
                                                                                                                  • National Counties Building Society
                                                                                                                  • Nationwide Building Society
                                                                                                                  • The Paragon Group of Companies PLC

                                                                                                                  Buy to Let - Investing in Property - UK - March 2013

                                                                                                                  US $2,583.33 (Excl.Tax)