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Buy-to-let Mortgages - UK - March 2014

“Although the new rules linked to the Mortgage Market Review (MMR) will not apply to non-regulated buy-to-let business, there will still be some ramifications, not least because many lenders operate in both the mainstream residential and specialist buy-to-let sector.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in this report include:

  • What impact will the contraction in mainstream interest-only mortgages have?
  • Is there expansion potential?

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Table of contents

  1. Introduction

      • Product definition
        • Abbreviations
        • Executive Summary

            • The market
              • Buy-to-let gross lending up by 32% in 2013
                • Figure 1: Forecast of new buy-to-let mortgage advances – fan chart, 2008-18
              • Rental market continues to expand
                • Figure 2: Key market fundamentals, 2007, 2010 and 2013 (year-end)
              • New business lending is expected to grow at a solid pace over the next few years
                • Market factors
                  • Strong demand for rental property in the UK
                    • Market fundamentals
                      • Regulation update
                        • Company, brands and innovation
                          • Leading lenders
                            • Figure 3: Lenders’ share of the buy-to-let market, by balances outstanding, 2013
                          • Greater product activity
                            • Limited adspend due to dominance of intermediated sales
                              • The consumer
                                • One in twenty UK adults are landlords
                                  • Figure 4: Proportion of UK adults who let property, December 2013
                                • Means of acquisition
                                  • Figure 5: How acquired rental property, December 2013
                                • Buy-to-let borrowers favour interest-only
                                  • Buy-to-let investment intentions
                                    • Figure 6: Intentions regarding buy-to-let property investment, December 2013
                                  • What landlords think about investing in buy-to-let
                                    • House price predictions
                                      • Figure 7: Expected property price movement over the next 12 months, December 2013
                                    • What we think
                                    • Issues in the Market

                                        • Contraction in mainstream interest-only mortgages could see more landlords switching to buy-to-let deals
                                          • The facts
                                            • The implications
                                              • Good expansion potential
                                                • The facts
                                                  • The implications
                                                  • Trend Application

                                                    • Target mortgage holders with buy-to-let promotions
                                                      • Explore the viability of crowd-funding and co-ownership
                                                        • Young people can use buy-to-let as a gateway into the property market
                                                        • Market Drivers

                                                          • Key points
                                                            • Buy-to-let mortgage demand is relatively strong
                                                              • Figure 8: Demand for buy-to-let and prime lending, 2009-13
                                                            • Spreads on buy-to-let lending fell during the final three quarters of 2013
                                                              • Figure 9: Spreads on buy-to-let lending – retrospective and forward-looking, 2009-13
                                                            • Lenders continue to see decent margins on new lending
                                                              • Figure 10: Bank of England base rate, three-month (monthly average) LIBOR and effective new mortgage rate, January 2007-December 2013
                                                            • Housing market conditions improve
                                                              • Rental demand and supply
                                                                • Void periods, tenant defaults and loan arrears
                                                                  • Average value of rented property grew in 2013
                                                                    • Figure 11: Average value of rented houses versus rented flats, Q1 2008-Q4 2013
                                                                  • Geared investments offer better returns than cash buys
                                                                    • Figure 12: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q1 2008-Q4 2013
                                                                  • Regional variation in geared-investment returns
                                                                    • Figure 13: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q4 2013
                                                                  • Landlord characteristics and behaviour
                                                                    • Recent regulatory and policy developments
                                                                    • UK Housing Stock

                                                                      • Key points
                                                                        • The privately rented sector accounts for one in eight UK properties
                                                                          • Figure 14: UK Housing stock, by tenure, 1991-2012
                                                                        • The number of reluctant landlords appears to be on the wane
                                                                          • Buy-to-let mortgages are funding nearly one in three privately rented homes
                                                                            • Figure 15: Share of UK privately rented dwellings that are being purchased with a buy-to-let mortgage, 2002-12
                                                                          • Sharp drop in new private builds exacerbates housing shortage
                                                                            • Figure 16: Number of permanent dwellings completed, by tenure – UK, 2006/07-12/13
                                                                        • Market SWOT Analysis

                                                                            • Figure 17: Buy-to-let mortgage market – strengths, weaknesses, opportunities and threats, 2014
                                                                        • Who’s Innovating?

                                                                          • Key points
                                                                            • Product availability increases
                                                                              • Competition hots up
                                                                                • New lender enters buy-to-let arena with a ‘unique’ proposition
                                                                                • Market Size and Forecast

                                                                                  • Key points
                                                                                    • There are now over 1.5 million buy-to-let loans outstanding
                                                                                      • Figure 18: Number and value of buy-to-let mortgages outstanding, 2007-13 (year-end)
                                                                                    • New buy-to-let advances grew strongly in 2013
                                                                                      • Figure 19: Volume and value of new buy-to-let mortgages, 2007-13
                                                                                    • The growth was driven by both remortgage and house-purchase activity
                                                                                      • Mintel expects the market to continue to grow over the next five years
                                                                                        • Figure 20: Forecast of new buy-to-let mortgage advances – fan chart, 2008-18
                                                                                        • Figure 21: Forecast of the number of new buy-to-let mortgage sales – fan chart, 2008-18
                                                                                        • Figure 22: Forecast of new buy-to-let mortgage business, 2008-18
                                                                                      • Forecast methodology
                                                                                        • Fan chart explanation
                                                                                        • Market Share

                                                                                          • Key points
                                                                                            • Two lenders dominate the buy-to-let market
                                                                                              • Figure 23: Buy-to-let amounts outstanding – selected lenders only, 2011-13
                                                                                          • Companies and Products

                                                                                              • Lloyds Banking Group
                                                                                                  • Figure 24: Key annual financial data for LBG, 2012-13
                                                                                                • Nationwide and TMW
                                                                                                    • Figure 25: Key interim financial data for Nationwide, H1 2012 and H1 2013
                                                                                                  • Paragon
                                                                                                      • Figure 26: Key annual financial data for The Paragon Group, 2012 and 2013
                                                                                                  • Brand Communication and Promotion

                                                                                                    • Key points
                                                                                                      • Overall mortgage adspend has increased over the past year
                                                                                                        • Figure 27: Total advertising expenditure on mortgage products, by sub-category, 2009-13
                                                                                                      • Limited buy-to-let advertising
                                                                                                        • Figure 28: Adspend on buy-to-let mortgages, by selected advertisers and media type, 2013
                                                                                                    • Channels to Market

                                                                                                      • Key points
                                                                                                        • Intermediaries play a major role in the distribution of buy-to-let loans
                                                                                                          • Figure 29: Distribution channels used by selected buy-to-let lenders, February 2014
                                                                                                        • Intermediary share growing steadily in the wider mortgage market
                                                                                                          • Figure 30: Proportional distribution of regulated mortgage sales, by channel, 2007/08-2012/13
                                                                                                      • Ownership of Rental Property

                                                                                                        • Key points
                                                                                                          • Survey background
                                                                                                            • One in 20 UK adults are landlords
                                                                                                                • Figure 31: Ownership of property which is let to tenants or holiday let, December 2013
                                                                                                              • A small proportion of tenants are also landlords
                                                                                                                • Figure 32: Ownership of property which is let to tenants or holiday let, by tenure, December 2013
                                                                                                              • Mortgage holders are more inclined to invest in buy-to-let
                                                                                                                • Buy-to-let landlords are typically ABC1s aged 45-64
                                                                                                                  • Just under a third of landlords are aged 25-44
                                                                                                                  • Means of Acquiring Rental Property

                                                                                                                    • Key points
                                                                                                                      • Around one in seven inherited their rental property or holiday home
                                                                                                                          • Figure 33: How acquired rental property, December 2013
                                                                                                                        • A large minority initially bought their rental property with a standard residential mortgage
                                                                                                                          • Figure 34: Type of mortgage used to buy rental property, December 2013
                                                                                                                        • Interest-only is the most common type of buy-to-let loan
                                                                                                                        • Attitudes and Intentions Relating to Property Investment

                                                                                                                          • Key points
                                                                                                                            • Many people have aspirations to become property investors
                                                                                                                                • Figure 35: Attitudes and intentions regarding buy-to-let property investment, December 2013
                                                                                                                              • One in seven landlords believe now is a good time to invest in buy-to-let
                                                                                                                              • House Price Predictions

                                                                                                                                • Key points
                                                                                                                                  • Most people expect house prices to grow in 2014
                                                                                                                                    • Figure 36: Expected property price movement over the next 12 months, December 2013
                                                                                                                                • Appendix – Market Size and Forecast

                                                                                                                                  • Value forecast – best- and worst-case scenarios
                                                                                                                                    • Figure 37: Forecast of new buy-to-let advances – best- and worst-case scenarios, at current prices, 2013-18
                                                                                                                                  • Volume forecast – best- and worst-case scenarios
                                                                                                                                    • Figure 38: Forecast of the number of new buy-to-let mortgages – best- and worst-case scenarios, at current prices, 2013-18
                                                                                                                                • Appendix – Ownership of Rental Property by Demographics

                                                                                                                                      • Figure 39: Ownership of rental property, by demographics, December 2013
                                                                                                                                  • Appendix – Attitudes and Intentions Regarding Buy-to-Let Investment

                                                                                                                                      • Figure 40: Intentions regarding buy-to-let property investment, by demographics, December 2013
                                                                                                                                      • Figure 41: Attitudes regarding buy-to-let property investment, by demographics, December 2013
                                                                                                                                  • Appendix – Profile of Existing Landlords and Prospects

                                                                                                                                      • Figure 42: Demographic profile of total sample versus existing landlords and buy-to-let prospects, December 2013
                                                                                                                                  • Appendix – House Price Predictions

                                                                                                                                      • Figure 43: Expected property price movement over the next 12 months, by demographics, December 2013

                                                                                                                                  Companies Covered

                                                                                                                                  • Accord Mortgages
                                                                                                                                  • Asda Group Ltd
                                                                                                                                  • Association of Residential Letting Agents
                                                                                                                                  • Bank of England
                                                                                                                                  • Bank of Ireland
                                                                                                                                  • Barclays Bank plc
                                                                                                                                  • Birmingham Midshires
                                                                                                                                  • Britannia Building Society
                                                                                                                                  • British Gas
                                                                                                                                  • Cheltenham & Gloucester plc
                                                                                                                                  • Cheshire Building Society
                                                                                                                                  • Clydesdale Bank
                                                                                                                                  • Co-operative Group
                                                                                                                                  • Coventry Building Society
                                                                                                                                  • Dunfermline Building Society
                                                                                                                                  • Grupo Santander UK
                                                                                                                                  • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                  • HSBC Investments (UK) Limited
                                                                                                                                  • Investec
                                                                                                                                  • J. Sainsbury
                                                                                                                                  • Kensington Mortgages
                                                                                                                                  • Kent Reliance Building Society
                                                                                                                                  • Land Registry
                                                                                                                                  • Lloyds Banking Group
                                                                                                                                  • Marks & Spencer (UK)
                                                                                                                                  • Metro Bank
                                                                                                                                  • Nationwide Building Society
                                                                                                                                  • NatWest
                                                                                                                                  • Office for National Statistics
                                                                                                                                  • Paragon Mortgages
                                                                                                                                  • Platform
                                                                                                                                  • Portman Building Society
                                                                                                                                  • Post Office Limited
                                                                                                                                  • Royal Bank of Scotland Group plc
                                                                                                                                  • Skipton Building Society
                                                                                                                                  • Tesco (UK)
                                                                                                                                  • Virgin Money
                                                                                                                                  • Waitrose
                                                                                                                                  • Wm Morrison Supermarkets
                                                                                                                                  • Yorkshire Bank PLC
                                                                                                                                  • Yorkshire Building Society

                                                                                                                                  Buy-to-let Mortgages - UK - March 2014

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