Table of Contents
Overview
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- What you need to know
- Key issues covered in this Report
- Products covered in this Report
Executive Summary
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- The market
- Nearly 5 million UK adults own a second home or investment property
- More than a third of privately rented dwellings are mortgaged buy-to-let
- COVID-19 will lead to a sharp decline in lending in 2020 but will then stabilise
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- Figure 1: Forecast of new buy-to-let mortgage advances (adjusted) – Fan chart, 2014-24
- Market recovery has been driven mainly by strong remortgage activity
- 2019 growth in house-purchase activity will not be repeated in 2020
- Slowdown in remortgage activity was expected prior to COVID-19
- Impact of COVID-19 on Property Investment Market
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- Figure 2: Expected impact of COVID-19 on property as an investment, short, medium and long term, 10 May 2020
- Companies and brands
- LBG is the largest buy-to-let lender
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- Figure 3: Largest buy-to-let lenders, by amounts outstanding, 2018-19
- Nationwide gains on market leader
- Different lenders adopt different strategies amid slowdown in growth
- Coronavirus restricts availability, reversing the recent trend
- The consumer
- 9% of UK adults own a rental property or second home
- 26% of property investors own multiple properties
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- Figure 4: Size of property portfolio, February 2020
- Property investors expecting to sell/exit market cancel out those expecting to make further purchases
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- Figure 5: Property-related plans over the next two years, February 2020
- A small proportion expect to remortgage or take out a new loan or further advance
- 9% are struggling to make a profit and 13% have considered selling up
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- Figure 6: Difficulties experienced by property investors, February 2020
- 5% have set up a limited company
- There’s little appetite to become a rental property owner in the short term
- What we think
The Impact of COVID-19 on Property Investment
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- Short, medium and long-term impact on the industry
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- Figure 7: Expected impact of COVID-19 on property as an investment, short, medium and long term,10 May 2020
- Opportunities and Threats
- Short-term upheaval but long-term growth was already slowing
- Crisis has complex implications for supply and demand
- Remortgaging activity will hold up better than purchases
- Rates cut will ease some pressure….
- …but rising arrears will still have an impact
- Strategic shifts will create opportunities for specialists
- Holiday lets will be badly hit in the short term but medium term is more positive
- Opportunities for new advice channels
- Impact on the market
- Sharp drop in buy-to-let lending in 2020
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- Figure 8: Forecast of new buy-to-let mortgage advances (adjusted) – Fan chart, 2014-24
- Shifts in consumer behaviour
- Household finances held up in April…
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- Figure 9: The financial well-being index, January 2016-April 2020
- …but confidence in the year ahead dropped sharply
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- Figure 10: The financial confidence index, January 2016-April 2020
- Impact on key consumer segments
- Potential property investors will be cautious about new commitments
- Prospective second home purchasers could be more resilient
- Property investors who are reliant on rental income face cashflow problems
- Renters more exposed to the crisis and likely to put off major plans
- How a COVID-19 recession will reshape the market
- Rising unemployment hit lending and increase arrears
- A different type of recession for the buy-to-let market
- Further government intervention likely
- COVID-19: Market context
Issues and Insights
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- Rent and mortgage arrears to rise as a result of the coronavirus
- The facts
- The implications
- Searching for new growth opportunities
- The facts
- The implications
The Market – What You Need to Know
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- There are around 2 million buy-to-let loans outstanding
- Remortgage activity accounts for over 70% of new business
- COVID-19 will hit house purchase sector in 2020
- Slowdown in remortgage activity likely
- Holiday rental sector to be hit hard by social distancing measures
- Tax and rule changes reduce appeal of investing in bricks and mortar
Market Size and Forecast
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- Buy-to-let mortgage market matures and growth-rate slows
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- Figure 11: Number of buy-to-let mortgages outstanding, 2010-19
- New lending grew by 9% in 2019
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- Figure 12: Volume and value of new buy-to-let lending (house purchase loans and remortgages only), 2015-19
- COVID-19 forecast – lending to fall sharply in 2020 before recovering in 2021
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- Figure 13: Forecast of new buy-to-let mortgage advances (adjusted) – Fan chart, 2014-24
- Figure 14: Forecast of new buy-to-let mortgage business (adjusted), 2014-24
- Pre-COVID 19 forecast – market expected to stabilise
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- Figure 15: Forecast of new buy-to-let mortgage advances (pre-COVID-19) – Fan chart, 2014-24
- Figure 16: Forecast of new buy-to-let mortgage business (pre-COVID-19), 2014-24
- Forecast methodology
Market Segmentation
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- House-purchase sector achieves growth in 2019…
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- Figure 17: New buy-to-let loans for house purchase and remortgages, by volume and value, 2015-19
- …but is unlikely to be repeated in 2020
Market Drivers
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- Spreads on buy-to-let lending narrowed in Q4 2019…
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- Figure 18: Spreads on buy-to-let lending (quarterly basis), Q1 2014-Q4 2020
- …as market competition and product availability continued to increase
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- Figure 19: Quoted average monthly buy-to-let mortgage rates at 75% LTV, February 2012-February 2020
- Property investors experience a fall in yields
- Strong tenant demand for private rented property…
- …while there are signs of a contraction in supply
- Only 0.2% of buy-to-let loans were in arrears in Q4 2019…
- …but arrears are likely to rise in 2020
- Different ways of investing in bricks and mortar
- Domestic holiday rental sector set for a sharp drop in demand
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- Figure 20: Number of domestic holiday rentals, 2014-19
Regulatory and Legislative Changes
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- Property investors face an increased regulatory and tax burden
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- Figure 21: Summary of tax and regulatory changes affecting the buy-to-let market, 2016 onwards
- Figure 22: Stamp duty land tax rates for residential and additional properties, from April 2016
- Figure 23: Phased withdrawal of mortgage interest tax relief available to landlords, 2017/18-2020/21
Companies and Brands – What You Need to Know
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- LBG is the largest buy-to-let lender…
- …although second-largest, Nationwide continues to gain on the market leader
- Different lenders use different strategies
- The recent rise in competition is put in reverse by COVID-19
Market Share
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- LBG continues to see gradual erosion of its share
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- Figure 24: Largest buy-to-let lenders by amounts outstanding, 2018-19
- Nationwide narrows the gap on LBG
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- Figure 25: Largest buy-to-let lenders by gross new lending, 2017-18
- Barclays and Santander grow buy-to-let balances strongly in 2019
- OneSavings Bank grows share following Charter Court merger
- Coventry Building Society
- RBS Group’ new buy-to-let advances fell by more than a third in 2018
- Paragon’s buy-to-let business stable
Competitive Strategies and Launch Activity
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- More newcomers have emerged over the past year
- Specialist lenders are more likely to cater for landlords with complex or large portfolios
- Coronavirus pandemic causes lenders to change strategy
- Buy-to-let market had become more competitive until COVID-19 raised fears of a housing slump
- Landbay withdraws from peer-to-peer buy-to-let market
- More lenders see potential in the burgeoning holiday let market
The Consumer – What You Need to Know
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- 9% of UK adults own a rental property or second home
- Property investors expecting to sell/exit market offset those expecting to make further purchase
- Remortgage activity likely to be subdued over the next two years
- A significant minority were finding things tough before COVID-19
- Few adults plan to enter rental property market in the next two years
Ownership of Investment Property and Second Homes
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- One in 11 adults in the UK owns an investment or second property
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- Figure 26: Ownership of investment property or second home, February 2020
- Residential landlords have a slightly younger age profile than second-home owners
- The propensity to own a second property rises with household income
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- Figure 27: Proportion of adults who own a second home or rental property, by age, gross annual household income and housing situation, February 2020
- Around one in seven second property owners live in the rented sector
- 7% of property investors own four or more properties
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- Figure 28: Size of property portfolio, February 2020
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- Figure 29: Size of property portfolio, by UK residential landlords versus total sample, February 2020
Property Investors’ Short-term Plans
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- Twice as many property investors plan to buy as sell property within the next two years…
- …but the outlook is much less positive if all those who intend to exit the market are taken into account
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- Figure 30: Property-related plans over the next two years, February 2020
- Remortgage activity could fall over the next two years
- 4% are planning major renovations
- Just 2% expect to renew or apply for an HMO licence
Difficulties Experienced and Potential Implications
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- One in 11 property investors are struggling to yield a decent profit…
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- Figure 31: Method of property management, use of incorporation and difficulties experienced by property investors, February 2020
- …but this could increase in the months ahead
- 13% have considered selling up as a result of regulatory and tax changes
- Most property investors use a managing agent
Prospective Investors and Second Home Owners
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- Just 1% of non-property investors expect to enter the market within the next two years…
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- Figure 32: Potential second home owners, buy-to-let investors and property developers, February 2020
- …while 2% are planning to buy a second/holiday home
Appendix – Data Sources and Abbreviations
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- Abbreviations
- Consumer research methodology
Appendix – Market Size and Forecast
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- Original (non-adjusted) total market forecast
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- Figure 33: Forecast of new buy-to-let mortgage advances (non-adjusted) – Fan chart, 2014-24
- Figure 34: Forecast of buy-to-let advances (non-adjusted) – Best and worst case scenarios, 2019-24
- Original (non-adjusted) house-purchase sector forecast
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- Figure 35: Forecast of new buy-to-let house-purchase advances (non-adjusted) – Fan chart, 2014-24
- Original (non-adjusted) remortgage sector forecast
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- Figure 36: Forecast of buy-to-let remortgage advances (non-adjusted) – Fan chart, 2014-24
- Forecast methodology
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