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Buy-to-Let - UK - March 2010

This report examines the key factors that drive the market, such as the growth of the private rented sector in the UK housing landscape. The report looks in detail at the size of the BTL lending market, discussing both the short- and long-term trends that have emerged here. We then look at the competitive environment – the key players in the market and their respective market shares – as well as the distribution channels that are used. The report concludes with a detailed look at the consumer – their current tenure plus attitudes towards home ownership, house prices, and investing in a BTL property.

  • The main driver of the BTL market is the growth in demand for private rented accommodation, which has grown from just over 10% of English households in 2001 to almost 14% in 2008.
  • Throughout much of the noughties, rental yields were in decline according to ARLA, exacerbated by the rise in reluctant landlords during the credit crunch, although since around mid-2008, total geared investment returns on BTL properties have steadily increased, attracting investors.
  • Regulation is a major concern for BTL lenders at present. The FSA outlined in their thematic review that they want the sector to be regulated just like residential mortgages, which will add to the administrative and cost burden of lenders.
  • The BTL market has contracted sharply over the last two years and lending criteria has tightened considerably, reducing availability. According to Moneyfacts, in August 2007 there were 3,662 BTL mortgages available, falling to just 179 products in September 2009. In November 2009, just 1.4% of products required a deposit of 20% or less compared with 77.6% of products in August 2007.
  • Looking at just how much the market has contracted in recent years, new BTL gross advances fell by 39% in 2008 and 69% in 2009, standing at an eight-year low of just £8.5 billion last year. Things are starting to improve, however, with gross advances rising by 9% in Q4 2009, the second consecutive quarter that lending increased.
  • Based on trade research, Mintel estimates that just three lenders - BM Solutions, The Mortgage Works and Cheltenham & Gloucester - account for 80% of all new lending in the market.
  • According to Mintel's own consumer research, just 3% of adults own a property in the UK that they rent out. These are more likely to be middle aged (35-44 years old), ABs, with a household income of £50,000+.
  • BTL investors are more bullish about the prospects for house prices, with 92% of landlords/potential landlords thinking that house prices will either stay about the same or grow slightly this year, compared with 74% of all UK adults.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market definitions
          • Abbreviations
          • Future Opportunities

            • Flexibility encourages more people to rent rather than buy
              • Perhaps parents could lend a helping hand?
              • Market in Brief

                • New BTL lending has fallen by 81% since 2007
                  • Figure 1: Number and value of new BTL mortgages sold, 2003-09
                • Rising demand for private rented accommodation
                  • Conditions are certainly starting to improve
                    • Buy-to-let versus equity-based investment
                      • Lending criteria have tightened considerably
                        • Figure 2: Availability of BTL mortgage products, by LTV, August 2007 and November 2009
                      • Three lenders dominate the market
                        • Figure 3: Estimated market share of the leading BTL lenders, by new gross advances, Q1 2010
                      • The BTL market is heavily intermediated
                        • Just 3% of UK adults own a rental property…
                          • Figure 4: Property ownership/intentions, December 2009
                        • … and around half say that they would never invest in BTL
                          • Figure 5: Attitudes towards BTL, December 2009
                      • Internal Market Environment

                        • Key points
                          • The privately rented sector is growing rapidly
                            • Figure 6: Household tenure in England, by number of households and proportion of total households, 1961, 1971, 1981, 1991 and 2001-08
                          • House prices boomed throughout much of the noughties…
                            • Figure 7: Index of average mix-adjusted UK house prices (Feb 2002=100), Feb 2002-Oct 2009
                          • … although prices fell significantly in 2008
                            • Figure 8: Percentage annual change* in the index of average mix-adjusted UK house prices, Feb 2003-Oct 2009
                          • Average prices of rental properties have also fallen…
                            • Figure 9: The average value of rented houses and flats – all regions, Q1 2008-Q3 2009
                          • … but have held up relatively well in London and the South East
                            • Figure 10: The average value of rented houses and flats, by region, Q1 2008-Q3 2009
                          • Rental returns have fallen slightly over the last few years…
                            • Figure 11: Rental returns to landlords, Q3 2003-Q4 2009
                          • … although total ROI has picked up since mid-2008
                            • Figure 12: The annual rate of return on BTL, Q1 2006-Q4 2009
                          • Arrears and repossessions have started to ease
                            • The potential for mortgage fraud is also a problem
                              • The majority of landlords are in it for the long term
                                • Figure 13: Key landlord demographics, September 2009
                              • Increased regulation may deter investors…
                                • … with additional proposals being considered
                                  • The tenancy deposit scheme
                                    • Figure 14: Tenancy deposit schemes joined by landlords, March 2008
                                  • Calls for regulation of the BTL mortgage market
                                    • Lettings agents dealt a blow by the OFT
                                    • Broader Market Environment

                                      • Key points
                                        • Demographic and social trends have increased rental demand
                                          • The UK finally emerges from recession
                                            • Figure 15: Quarter-on-quarter growth of real GDP, Q1 2004-Q3 2009
                                          • Low interest rates have helped support the property market
                                            • Figure 16: UK Inter-bank, three-month rate+ and selected UK bank rates*, Jan 2001-Dec 2009
                                          • Credit conditions are improving
                                            • Figure 17: Changes in BTL lending spreads, Q2 2007-Q1 2010
                                        • Competitive Context

                                          • Key points
                                            • BTL is a niche type of investment
                                              • Figure 18: Ownership of savings and investment products, December 2009
                                            • Global stock markets have recovered strongly…
                                              • Figure 19: Performance of the FTSE 100 and FTSE All Share indices, January 2004-February 2010
                                            • … prompting a rise in sales of investment funds
                                              • Figure 20: Retail sales of unit trusts and OEICs, by IMA members, 2000-09*
                                          • SWOT Analysis

                                              • Figure 21: Buy-to-Let market – SWOT analysis, 2010
                                          • Who’s Innovating?

                                            • Key points
                                              • Lenders focusing on risk and pricing, not innovation
                                                  • Figure 22: Changes in BTL market conditions since 2006/07
                                                • Lending criteria are extremely tight at present…
                                                  • Figure 23: Availability of BTL mortgage products, by LTV, August 2007 and November 2009
                                                • … and the number of products available has fallen significantly
                                                  • Figure 24: Number of BTL mortgage products available, August 2007-November 2009
                                              • Trade Perspective

                                                • The private rented sector drives growth in BTL
                                                  • The lack of wholesale funding is a major problem…
                                                    • … prompting much tighter lending criteria
                                                      • Innovation and remortgage activity is lacking at present
                                                        • Conditions in the market have started to improve…
                                                          • … with most expecting 2010 to be a much better year for BTL
                                                            • Market shares and distribution channels
                                                              • Regulation and other concerns
                                                              • Market Size and Forecast

                                                                • Key points
                                                                  • The BTL market has declined sharply since 2007…
                                                                    • Figure 25: Number and value of new BTL mortgages sold, 2003-09
                                                                  • … although lending did increase in the second half of 2009
                                                                    • Loans for house purchase take a growing share of the market
                                                                      • Figure 26: Breakdown of BTL gross advances (by value), by mortgage type, 2003-09
                                                                    • Demand for BTL mortgages increased significantly in 2009
                                                                      • Figure 27: Changes in demand for BTL mortgages*, Q2 2007-Q1 2010
                                                                    • Market forecast
                                                                      • A return to growth in 2010…
                                                                        • Figure 28: Forecast growth of the BTL market, by volume and value of new gross advances, 2004-14
                                                                      • … with lending criteria easing and more competition
                                                                      • Market Share

                                                                        • Key points
                                                                          • A market that has contracted sharply over the last two years…
                                                                            • Figure 29: Ten largest buy-to-let lenders, by balances outstanding and gross advances, 2007
                                                                          • … with fewer products available to investors
                                                                            • Figure 30: Summary of the main buy-to-let lenders, by the number of products on the market, March 2010
                                                                          • Lloyds Banking Group and Nationwide are the market leaders
                                                                            • Figure 31: Estimated market share of the leading BTL lenders, by new gross advances, Q1 2010
                                                                        • Companies and Products

                                                                          • Major players
                                                                            • Santander
                                                                              • Barclays (Woolwich)
                                                                                • Lloyds Banking Group
                                                                                  • Lloyds TSB
                                                                                    • Halifax
                                                                                      • BM Solutions (Birmingham Midshires)
                                                                                        • Cheltenham & Gloucester
                                                                                          • Northern Rock
                                                                                            • RBS/NatWest
                                                                                              • The Mortgage Works (Nationwide)
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • BTL advertising – what advertising?
                                                                                                    • Figure 32: Total BTL adspend, 2005-09
                                                                                                  • C&G is the largest advertiser of BTL mortgages
                                                                                                    • Figure 33: Top 20 BTL advertisers (by five-year total sector adspend), 2005-09
                                                                                                  • A sector that focuses predominantly on press advertising
                                                                                                    • Figure 34: BTL adspend, by media type, 2005-09
                                                                                                • Channels to Market

                                                                                                  • Key points
                                                                                                    • The BTL market uses a range of different distribution methods…
                                                                                                      • Figure 35: Main distribution channels used in the BTL market – illustration, 2010
                                                                                                    • … with intermediaries accounting for around 85% of all lending
                                                                                                      • Figure 36: Distribution channels used by leading BTL lenders, March 2010
                                                                                                  • The Consumer – Property Ownership and Intentions

                                                                                                    • Key points
                                                                                                      • Just 3% of UK adults own a BTL property
                                                                                                        • Figure 37: Property ownership/intentions, December 2009
                                                                                                      • 35-44-year olds are most likely to be landlords…
                                                                                                        • Figure 38: Property ownership/intentions, by various demographics, December 2009
                                                                                                      • … as are ABs and high earners
                                                                                                      • The Consumer – Attitudes towards House Prices and Property in General

                                                                                                        • Key points
                                                                                                          • Most predict zero or low growth in house prices this year
                                                                                                            • Figure 39: Performance of property prices over the next year, December 2009
                                                                                                          • Landlords are more realistic about house prices…
                                                                                                            • Figure 40: Property ownership/intentions, by performance of property prices over the next year, December 2009
                                                                                                          • … while older people are also more bullish about the outlook
                                                                                                            • People still have faith in property as a long-term investment
                                                                                                              • Figure 41: Attitudes towards owning property and having a mortgage, December 2009
                                                                                                            • Landlords still believe property is a good long-term investment
                                                                                                              • Figure 42: Property ownership/intentions, by attitudes towards owning property and having a mortgage, December 2009
                                                                                                            • BTL investors are particularly sensitive about arrangement fees
                                                                                                              • Figure 43: Property ownership/intentions, by attitudes towards arranging a mortgage or remortgage, December 2009
                                                                                                          • The Consumer – Attitudes towards BTL

                                                                                                            • Key points
                                                                                                              • There is a lot of resistance to BTL…
                                                                                                                • Figure 44: Attitudes towards BTL, December 2009
                                                                                                              • … although some think that now is a good time to buy
                                                                                                                • Landlords are more positive about property investment
                                                                                                                  • Figure 45: Property ownership/intentions, by attitudes towards BTL, December 2009
                                                                                                                • They are also sympathetic to the frustrations of FTBs
                                                                                                                  • Affluent individuals are more positive about BTL
                                                                                                                    • Figure 46: Attitudes towards BTL, by various demographics, December 2009
                                                                                                                  • House prices in London are still a key barrier to investors
                                                                                                                    • The more adventurous investors may be looking to buy
                                                                                                                      • Figure 47: Performance of property prices over the next year, by attitudes towards BTL, December 2009
                                                                                                                  • The Consumer – Target Groups

                                                                                                                    • Key points
                                                                                                                      • Potential Buy to Letters are the best target for lenders
                                                                                                                        • Figure 48: Target groups, by property ownership/intentions, December 2009
                                                                                                                      • The Out of Market Majority are unsure about house prices
                                                                                                                        • Figure 49: Target groups, by performance of property prices over the next year, December 2009
                                                                                                                      • The Outright Owning Niche don’t care about mortgages
                                                                                                                        • Figure 50: Target groups, by attitudes towards owning property and having a mortgage, December 2009
                                                                                                                      • Potential Buy to Letters are optimistic about property investment…
                                                                                                                        • Figure 51: Target groups, by attitudes towards BTL, December 2009
                                                                                                                      • … but don’t discount all Outright Owning Nichers
                                                                                                                        • Potential Buy to Letters are likely to be ABs aged 25-54
                                                                                                                          • Figure 52: Target groups, by demographics, December 2009
                                                                                                                      • Appendix – The Consumer – Property Ownership and Intentions

                                                                                                                          • Figure 53: Property ownership/intentions, by various demographics, December 2009
                                                                                                                      • Appendix – The Consumer – Attitudes towards House Prices and Property in General

                                                                                                                          • Figure 54: Performance of property prices over the next year: Average scores*, by key demographics, December 2009
                                                                                                                      • Appendix – The Consumer – Attitudes towards BTL

                                                                                                                          • Figure 55: Attitudes towards BTL, by various demographics, December 2009
                                                                                                                          • Figure 56: Attitudes towards BTL, by various demographics, December 2009 (continued)
                                                                                                                      • Appendix – The Consumer – Target Groups

                                                                                                                          • Figure 57: Target groups, by demographics, December 2009

                                                                                                                      Companies Covered

                                                                                                                      • Abbey
                                                                                                                      • Alliance & Leicester
                                                                                                                      • Asda Group Ltd
                                                                                                                      • Association of Residential Letting Agents
                                                                                                                      • Bank of England
                                                                                                                      • Bank of Ireland
                                                                                                                      • Barclays Bank plc
                                                                                                                      • Birmingham Midshires
                                                                                                                      • BlackRock, Inc.
                                                                                                                      • Bradford & Bingley plc
                                                                                                                      • Bristol & West
                                                                                                                      • British Bankers' Association (BBA)
                                                                                                                      • Capital Home Loans
                                                                                                                      • Chelsea Building Society
                                                                                                                      • Cheltenham & Gloucester plc
                                                                                                                      • Cheshire Building Society
                                                                                                                      • Citizens Advice Bureau
                                                                                                                      • Co-operative Group
                                                                                                                      • Council of Mortgage Lenders
                                                                                                                      • Countrywide Assured Group plc
                                                                                                                      • Coventry Building Society
                                                                                                                      • Derbyshire Building Society
                                                                                                                      • Financial Services Authority (The)
                                                                                                                      • First Active plc
                                                                                                                      • First Direct
                                                                                                                      • Freeview
                                                                                                                      • Gfk NOP
                                                                                                                      • Grupo Santander Central Hispano S.A.
                                                                                                                      • HBOS plc (Halifax Bank of Scotland)
                                                                                                                      • HSBC Private Bank (UK) Limited
                                                                                                                      • Investment Management Association
                                                                                                                      • Irish Life & Permanent
                                                                                                                      • Landlord Mortgages
                                                                                                                      • Leeds & Holbeck Building Society
                                                                                                                      • Lloyds Banking Group
                                                                                                                      • London Stock Exchange plc
                                                                                                                      • Market & Opinion Research International (MORI)
                                                                                                                      • Mortgage Express
                                                                                                                      • National Australia Bank
                                                                                                                      • National Savings & Investments
                                                                                                                      • Nationwide Building Society
                                                                                                                      • NatWest
                                                                                                                      • Northern Rock plc
                                                                                                                      • Norwich & Peterborough Building Society
                                                                                                                      • Office for National Statistics
                                                                                                                      • Office of Fair Trading
                                                                                                                      • Paragon Mortgages
                                                                                                                      • Portman Building Society
                                                                                                                      • Post Office Limited
                                                                                                                      • Royal Bank of Scotland Group plc
                                                                                                                      • Scottish Widows Bank plc
                                                                                                                      • Skipton Building Society
                                                                                                                      • Standard Life Bank Limited
                                                                                                                      • The Mortgage Business
                                                                                                                      • The Royal Institution of Chartered Surveyors
                                                                                                                      • UCB Home Loans
                                                                                                                      • Virgin Group Ltd.
                                                                                                                      • West Bromwich Building Society
                                                                                                                      • Woolwich plc
                                                                                                                      • Yorkshire Bank PLC

                                                                                                                      Buy-to-Let - UK - March 2010

                                                                                                                      £1,995.00 (Excl.Tax)