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Buy-to-let Mortgages - UK - April 2016

“The buy-to-let market will face an onslaught of challenges over the coming years, with an influx of regulatory changes that are set to slow down growth. Lenders need to adapt product ranges, support landlords with investment strategy rethinks, and ensure that all new borrowers are equipped with the knowledge to make the best decisions. Strengthening intermediary channels will be crucial.”

– Samantha Phillips, Financial Services Analyst

This report looks at the following areas:

  • Targeted products are needed for more complex landlords
  • Non-landlords should be targeted before they reach age 45 if they are to be persuaded to invest in rental property
  • Too much government regulation comes at the price of tenant protection

In the 2015 Summer Budget and Autumn Statement, Chancellor George Osborne announced a number of new changes that will impact the buy-to-let market over the coming years. An increase in stamp duty for buy-to-let properties from April 2016 and reductions in tax relief being phased in from April 2017 are the main causes for concern, as some investors will find that their properties are no longer profitable and may even be driven to sell. Lenders have reacted by tightening criteria to mitigate new risks and strengthening communication channels to help borrowers reach the best decisions. They have also been preparing for the European Mortgage Credit Directive (MCD), which came into effect on 21 March 2016, by aligning documentation and processes to comply with the new legislation that classifies some borrowers as ‘consumer buy-to-let’ (CBTL) landlords.

This Report analyses the buy-to-let mortgage market, covering the impact of the regulatory upheaval, the outlook for buy-to-let mortgage lending and the changing shape of product distribution. Mintel’s consumer research explores product ownership, consumer understanding of regulatory changes, and attitudes towards rental property investment.

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Table of contents

  1. Overview

    • What you need to know
    • Executive Summary

        • The market
          • Buy-to-let market enjoys highest level of activity since 2007 crisis
            • Figure 1: Forecast of new buy-to-let mortgage advances – fan chart, 2010-20
          • Three fifths of all buy-to-let lending is to re-mortgagors
            • Figure 2: Breakdown of buy-to-let house purchase and re-mortgage lending, 2010-15
          • Intermediaries dominate mortgage sales
            • Companies and brands
              • Lloyds Banking Group continues to dominate the market
                • Technology strengthens communication channels and boosts efficiency
                  • The consumer
                    • The proportion of landlords among adults has not grown in the past year
                      • Figure 3: Ownership of rental property, December 2015
                    • 32% of landlords are using a buy-to-let mortgage
                      • Figure 4: Buy-to-let mortgage ownership, December 2015
                    • Only two in five landlords fully understand the tax relief rule change
                      • Figure 5: Landlord awareness and understanding of tax relief rule change, December 2015
                    • 16% of landlords plan to sell one or more of their rental properties within the next 12 months
                      • Figure 6: Rental property plans for the next 12 months, December 2015
                    • 91% of retirees would not consider becoming landlords
                      • What we think
                      • Issues and Insights

                        • Targeted products are needed for more complex landlords
                          • Facts
                            • Implications
                              • Non-landlords should be targeted before they reach age 45 if they are to be persuaded to invest in rental property
                                • The facts
                                  • The implications
                                    • Too much government regulation comes at the price of tenant protection
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Buy-to-let market enjoys highest level of activity since 2007 crisis
                                            • Three fifths of all buy-to-let lending is to re-mortgagors
                                              • Intermediaries dominate mortgage sales
                                              • Market Size and Forecast

                                                • 2015 saw highest lending since 2007
                                                  • Figure 7: Total value of buy-to-let gross lending per year, 2007-15
                                                • Volume of new BTL mortgages increased by 27% in 2015
                                                  • Figure 8: Volume and value of new buy-to-let mortgages, 2007-15
                                                • Demand for buy-to-let lending reached peak level in Q3 2015
                                                  • Figure 9: Demand for buy-to-let and prime lending, 2011-15
                                                • Rate of growth of new advances expected to slow
                                                  • Re-mortgage activity expected to grow
                                                    • Buy-to-let mortgage lending expected to reach £48.7 billion in 2020
                                                      • Figure 10: Forecast of new buy-to-let mortgage advances – fan chart, 2010-20
                                                      • Figure 11: Forecast of new buy-to-let mortgage advances, at current and constant prices, 2010-20
                                                    • Forecast methodology
                                                    • Market Segmentation

                                                      • Three fifths of all buy-to-let lending is re-mortgage business
                                                        • Figure 12: New mortgages by purpose of loan, not seasonally adjusted, 2010-15
                                                        • Figure 13: Breakdown of buy-to-let house purchase and re-mortgage lending, 2010-15
                                                    • Channels to Market

                                                      • Intermediaries dominate mortgage sales
                                                        • Technological developments improve intermediary channel
                                                        • Market Drivers

                                                          • The privately rented sector accounts for one in five UK properties
                                                            • Figure 14: UK housing stock, by tenure, 2009-15
                                                          • BTL provides stronger yields and capital growth in a low interest rate environment
                                                            • Increased housing supply is not enough to curb house price inflation
                                                              • Figure 15: Number of permanent dwellings completed, by tenure – UK 2007-15
                                                            • Private housing rental price growth shows no signs of slowing
                                                              • Figure 16: Index of private housing rental prices, January 2011 – December 2015
                                                            • Landlord confidence crisis
                                                              • Spreads on buy-to-let lending fell during the final three quarters of 2015
                                                                • Figure 17: Spreads on buy-to-let lending, 2011-15
                                                              • The impact of the pension reform
                                                                • The rise of crowdfunding in the property sector
                                                                  • The threats and opportunities of alternative markets
                                                                    • The looming EU referendum and its impact on the buy-to-let market
                                                                      • HMRC rolls out new digital tax services
                                                                      • Regulatory and Legislative Changes

                                                                        • Concerns about financial stability prompts market intervention
                                                                          • Stamp Duty Land Tax (SDLT) surcharge comes into effect in April 2016
                                                                            • Buy-to-let tax relief restrictions phased in from April 2017
                                                                              • Changes to the wear and tear allowance take effect in April 2016
                                                                                • Smoke alarm rules were implemented on 1 October 2015
                                                                                  • The European Mortgage Credit Directive (MCD) came into effect on 21 March 2016
                                                                                    • Buy-to-let lending community adopts statement of practice
                                                                                      • Financial Policy Committee requests power to regulate buy-to-let mortgage lending
                                                                                        • Proposed new rules by the Prudential Regulation Authority (PRA)
                                                                                          • Changes to Capital Gains Tax in 2019
                                                                                            • The BCBS consultation paper comes into force in 2019 at the earliest
                                                                                            • Key Players – What You Need to Know

                                                                                              • Lloyds Banking Group continues to dominate the market
                                                                                                • Technology strengthens communication channels and boosts efficiency
                                                                                                  • Advertising expenditure for buy-to-let more than tripled in 2015
                                                                                                  • Market Share

                                                                                                    • Lloyds Banking Group continues to dominate the market
                                                                                                      • Figure 18: Buy-to-let amounts outstanding – selected lenders only, 2013-15
                                                                                                    • Santander market share growth is substantial
                                                                                                    • Competitive Strategies

                                                                                                        • Tightening criteria and amending affordability calculations in line with new risks
                                                                                                          • Lenders increase rental and interest cover ratios
                                                                                                            • Lenders increase maximum loans and loan-to-value rates (LTVs)
                                                                                                              • Santander introduces two-tiered tests
                                                                                                                • TSB Intermediary introduces a minimum income
                                                                                                                  • Woolwich makes affordability check holistic
                                                                                                                    • New Street Mortgages offers differential rental calculations depending on region
                                                                                                                      • Providers target different landlord categories
                                                                                                                        • HSBC opens up buy-to-let to non-customers
                                                                                                                          • NatWest begins targeting professional landlords and accepts selective licence applicants
                                                                                                                            • Pepper UK targets landlords with a less than perfect credit history
                                                                                                                              • Lenders target older landlords by increasing age caps
                                                                                                                                • Revamping product ranges to remain competitive
                                                                                                                                  • Speed, efficiency and transparency boosts
                                                                                                                                    • New Street Mortgages provides instant and reliable decision-making with full transparency
                                                                                                                                      • NatWest introduces earlier valuation instruction
                                                                                                                                        • Paragon Group diversifies funds with Paragon Bank to invest in booming buy-to-let business
                                                                                                                                          • Preparations for the European MCD
                                                                                                                                          • Launch Activity and Innovation

                                                                                                                                            • Limited Company and Consumer BTL products
                                                                                                                                              • Communication is key
                                                                                                                                                • Mortgage marketplaces offer an alternative way of investing in property
                                                                                                                                                • Advertising and Marketing Activity

                                                                                                                                                  • Total BTL ad spend more than triples over the past year
                                                                                                                                                    • Figure 19: Total above-the line, online display and direct mail advertising expenditure on buy-to-let mortgages, 2014-15
                                                                                                                                                  • NatWest accounts for 76% of 2015 total BTL adspend
                                                                                                                                                    • Press still dominates as advertising channel for this market
                                                                                                                                                      • Nielsen Media Research coverage
                                                                                                                                                      • The Consumer – What You Need to Know

                                                                                                                                                        • The proportion of landlords among adults has not grown in the past year
                                                                                                                                                          • 32% of landlords are using a buy-to-let mortgage
                                                                                                                                                            • Only two in five landlords fully understand the tax relief rule change
                                                                                                                                                              • 20% of landlords’ future plans have been affected by the stamp duty change
                                                                                                                                                                • 16% of landlords plan to sell one or more of their rental properties within the next 12 months
                                                                                                                                                                  • 91% of retirees would not consider becoming landlords
                                                                                                                                                                  • Rental Property and Buy-to-let Mortgage Ownership

                                                                                                                                                                    • 6% report owning at least one rental property
                                                                                                                                                                      • Figure 20: Ownership of rental property, December 2015
                                                                                                                                                                    • Self-employed respondents are three times more likely to be landlords
                                                                                                                                                                      • Figure 21: Rental property ownership, by working situation, December 2015
                                                                                                                                                                    • 55-64-year-olds are most likely to own multiple buy-to-let properties
                                                                                                                                                                      • Figure 22: Rental property ownership, by age group, December 2015
                                                                                                                                                                    • One third of landlords have a buy-to-let mortgage
                                                                                                                                                                      • Figure 23: how landlords are funding properties, December 2015
                                                                                                                                                                  • Awareness and Understanding of Tax Relief Change

                                                                                                                                                                    • Only two in five landlords fully understand the changes to tax relief
                                                                                                                                                                      • Figure 24: Awareness and understanding of the change to the tax relief rule, December 2015
                                                                                                                                                                    • Providing guidance to boost confidence
                                                                                                                                                                    • The Impact of the Increase in Stamp Duty Rates

                                                                                                                                                                      • 17% of landlords have not heard about the change to stamp duty rates
                                                                                                                                                                        • Figure 25: Impact of the 3% surcharge on stamp duty rates, December 2015
                                                                                                                                                                      • 20% of landlords say that their future plans have been affected by the changes to stamp duty
                                                                                                                                                                      • Landlords’ Plans for Next 12 Months

                                                                                                                                                                        • 16% of landlords plan to sell one or more of their rental properties
                                                                                                                                                                          • Figure 26: Rental property plans for the next 12 months, December 2015
                                                                                                                                                                        • Majority of landlords look set to be inactive in the next year
                                                                                                                                                                          • Some landlords will seek advice on rental property management
                                                                                                                                                                          • Appetite for BTL Property Investment

                                                                                                                                                                            • Attractiveness of rental property investment remains relatively constant
                                                                                                                                                                              • Figure 27: Non-landlords’ future investment plans, December 2015
                                                                                                                                                                            • Younger adults are more open to the idea of becoming a landlord
                                                                                                                                                                              • Figure 28: Proportion of non-landlords who would consider investing in property to let, December 2015
                                                                                                                                                                            • 91% of retirees would not consider becoming landlords
                                                                                                                                                                                • Figure 29: Appetite for buy-to-let property investment, by working situation, December 2015
                                                                                                                                                                              • Those buying a home are more than twice as likely to consider becoming landlords than those who own homes outright
                                                                                                                                                                                • Figure 30: Proportion of non-landlords who would consider investing in property to let, by housing situation, December 2015
                                                                                                                                                                            • Barriers to Rental Property Ownership

                                                                                                                                                                              • 40% think that buying an additional property to rent out is too expensive
                                                                                                                                                                                • Figure 31: Barriers to rental property ownership, December 2015
                                                                                                                                                                              • 24% do not have time to be landlords
                                                                                                                                                                                • 13% prefer easy-access savings or investments options
                                                                                                                                                                                  • 45-54 year old males show more engagement with property market forces
                                                                                                                                                                                    • Figure 32: Barriers to rental property ownership, December 2015
                                                                                                                                                                                • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                                                    • Products covered in this Report
                                                                                                                                                                                      • Abbreviations
                                                                                                                                                                                        • Consumer research methodology
                                                                                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                                                                                          • Forecast – Mortgage advances
                                                                                                                                                                                            • Figure 33: Best and worst forecast for buy-to-let mortgage advances, 2015-20
                                                                                                                                                                                          • Forecast – Volume of mortgages
                                                                                                                                                                                            • Figure 34: Forecast of number of new buy-to-let mortgage sales – fan chart, 2010-2020
                                                                                                                                                                                            • Figure 35: Forecast of number of new buy-to-let mortgage sales, at current and constant prices, 2010-2020
                                                                                                                                                                                            • Figure 36: Best and worst forecast for buy-to-let mortgages by volume, 2015-20
                                                                                                                                                                                          • Forecast Methodology

                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                          To learn more about the companies covered in this report please contact us.

                                                                                                                                                                                          Buy-to-let Mortgages - UK - April 2016

                                                                                                                                                                                          US $2,672.70 (Excl.Tax)