Table of Contents
Issues in the Market
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- Market evolution
- Key issues
- Market definitions
- Abbreviations
Insights and Opportunities
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- Scope to expand buy-to-let market yet further
- Ditto the property overseas market
- Loss of faith in pensions benefits buy-to-let
- Many prospective landlords need finance
- Many will look for expert financial advice…
- … but the Internet will also play a greater role in customer acquisition
Market in Brief
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- Market origins and expansion
- Demand drivers
- Market pressures
- Booming business
- Growth prospects are generally good
- Increasing competition
- Several lenders have relaxed their criteria
- Heavy reliance on intermediaries
- Advertising activity picks up in 2006
- Mintel’s consumer research findings: second property ownership
- Attitudes towards property investment are largely positive
- Over two fifths do not rule out becoming landlords in the future
Fast Forward Trends
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- Trend 1: Home as pension
- Definition
- Context
- Market touchpoints/implications
- Trend 2: Universal uncertainty
- Definition
- Context
- Market touchpoints/implications
- Trend 3: Meaning nuggets
- Definition
- Context
- Market touchpoints/implications
Broader Market Environment
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- Key points summary:
- Changing social and demographic trends
- Rising divorce rate drives housing demand
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- Figure 1: Number of marriages, remarriages and divorces – UK, 1974-2004
- Implications and opportunities
- Over 4 million adults cohabit
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- Figure 2: Marital status, by gender – GB, 2004/05
- Student population continues to expand
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- Figure 3: Number of students in Further and Higher Education – UK, 1970/71, 1980/01, 1990/01 and 2003/04
- Implications and opportunities
- Migration trends
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- Figure 4: International migration flows, 1975-2004
- Implications and opportunities
- Economic backdrop – cost of borrowing increases
- Recent borrowing activity
- Interest rate rises
- Inflationary worries
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- Figure 5: GDP annual growth, CPI, average annual base rate and proportion of workforce unemployed – UK, 1997-2007
- Outlook and implications for buy-to-let
Internal Market Environment
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- Key points summary:
- The privately rented sector accounts for around one in ten UK properties
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- Figure 6: Total number of UK dwellings, by tenure, 1991, 1996 and 2000-06
- Buy-to-let accounts for a rising proportion of private rentals
- A nation of homeowners
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- Figure 7: Owner-occupied dwellings as a proportion of total UK housing stock, 1980-2006
- Surge in second homes
- More buy property overseas
- The pros and cons of house price inflation
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- Figure 8: UK average house prices (mix-adjusted), 1993-2006
- Regional house price variation
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- Figure 9: Mix-adjusted house prices, by region – UK, 1996, 2002 and 2006 (year-end)
- Average rents have grown the fastest in the South
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- Figure 10: Average monthly rents – private sector, England, 1994-2006
- Rental yields stabilise
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- Figure 11: Average rental yields – England and Wales, May 2003-December 2006
- Alternative data source
- The South East offered buy-to-let investors the highest returns in 2006
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- Figure 12: Buy-to-let annual return on investment, by region, 2005-06
- Nearly three quarters of the capital’s new builds get snapped up by investors
- Profile of residential investment landlords: investment motive
- Most investors have fairly small portfolios…
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- Figure 13: Number of rented residental properties in portfolio, December 2006
- …and most are in it for the long haul
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- Figure 14: Average life expectancy of property investment before liquidating proeprty assets, December 2006
- Payment defaults in the buy-to-let sector are below the overall market average…
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- Figure 15: buy-to-let mortgage arrears, maximum LTV and minimum rental cover, 1999-2006
- …while repossessions are higher
- Increasing regulation is a cause for concern for landlords
- Implications
- The implications of MCOB for buy-to-let lenders
Competitive Context
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- Key points summary:
- Rising levels of housing equity have boosted personal wealth
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- Figure 16: Net worth of the household sector, 1999-2005
- Implications
- The attraction of property
- Home as ‘pension’
- Returns on saving and investments improve
- The Footsie continues on an upward path
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- Figure 17: FTSE 100 and FTSE All Share – daily index movements, December1999- December 2006
- Broker predictions are fairly positive
Strengths and Weaknesses
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- Figure 18: Buy-to-let mortgage market – SWOT analysis, 2007
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Who’s Innovating?
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- The birth of buy-to-let…
- …and its rapid expansion
- 100% of rental cover
- Increasing online sophistication
Trade Perspective
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- About the participating companies
- The market has evolved rapidly, but there’s still scope for further growth
- Distribution developments
- What’s the potential for new entrants still to emerge?
- Lenders are confident of the market’s future prospects
Market Size and Forecast
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- Key points summary:
- Context
- A mixed picture
- A downturn in the housing market could create opportunities for buy-to-let investors
- Further expansion likely
- Total buy-to-let mortgages outstanding
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- Figure 19: Number and value of buy-to-let mortgages outstanding, 1999-2006 (year-end)
- Strong demand drives new buy-to-let sales
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- Figure 20: Number and value of buy-to-let sales, 1999-2006
- Buy-to-let outperforms total mortgage market
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- Figure 21: Annual percentage growth rates – buy-to-let versus total mortgage market, 2000-06
- Market forecast to grow at a healthy rate
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- Figure 22: Forecast of new buy-to-let business, 2006-11
- Factors incorporated
Market Share
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- Key points summary:
- Mortgage Express has the largest buy-to-let loan book…
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- Figure 23: Ten largest buy-to-let lenders by balances outstanding and gross advances, 2006
- …but BM Solutions claims top spot for new business
- Top five account for over half of new buy-to-let business in 2006
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- Figure 24: Market share of top five buy-to-let lenders, by gross advances, 2006
- The market is dominated by mortgage specialists
- HBOS is the largest mortgage lender, by some margin
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- Figure 25: Lenders’ share of UK mortgage market, by gross advances, 2004-05
- Note
- Northern Rock edges up the mortgage rankings in 2006, by balances
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- Figure 26: Lenders’ share of UK mortgage market, by balances outstanding, 2004-05
Companies and Products
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- Key points summary:
- Pricing models
- Sample product comparisons
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- Figure 27: Sample buy-to-let mortgages – Money£acts best-buy table, 9 February 2006
- Profiles of the largest buy-to-let lenders
- Mortgage Express
- BM Solutions and TMB
- Paragon
- GMAC-RFC
- Northern Rock
- Cheltenham & Gloucester
- UCB Home Loans
- Capital Home Loans
- Bristol & West
- Other significant players
Brand Communication and Promotion
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- Key points summary:
- Overall mortgage adspend declines in 2006…
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- Figure 28: Total advertising expenditure on mortgage products, by product category, 2002-06
- …while investment in promoting buy-to-let increases, albeit from a small base
- Buy-to-let providers focus their adspend on the press
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- Figure 29: Proportional distribution of adspend on buy-to-let mortgages versus all mortgages, by media type, 2005 and 2006
- Mortgage Express invested the most in buy-to-let advertising in 2006
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- Figure 30: Adspend on mortgage products, by top ten buy-to-let advertisers, 2006
Channels to Market
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- Key points summary:
- The distribution mix
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- Figure 31: Main channels to market – illustration, 2006
- Intermediaries have a prominent presence in the buy-to-let mortgage market
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- Figure 32: Distribution channels used by the top ten buy-to-let lenders, by gross advances, in 2006
- Improved Web support
Consumer Financial Activity
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- About the Financial Activity Bulletin
- Expected activity levels recede further
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- Figure 33: Savings, investment, borrowing and debt repayment – consumers’ expected activity, September 2005-December 2006
- Saving comes to the fore
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- Figure 34: UK savings and spending indices, January 2001-January 2007
- Subdued picture across all demographic segments
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- Figure 35: Expected financial activity over the next six months, by socio-demographic and income groups, December 2006
- Declining business across the board
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- Figure 36: Leading financial activities planned in the next six months, December 2005-December 2006
- Mortgage providers may have to work harder for revenue
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- Figure 37: Intended mortgage and property purchase activity, December 2004-December 2006
- Identifying main financial services providers
- RBS has the highest proportion of ‘ very active’ customers
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- Figure 38: Activity levels of main financial services providers’ customer bases, December 2006
- Borrowing intentions are highest among HSBC, NatWest and Abbey customers
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- Figure 39: Activity intentions and current household financial situation, by MFSP, December 2006
The Consumer – Property Ownership and Aspirations
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- Key points summary:
- Survey background
- One in 14 homeowners have a second property
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- Figure 40: Property ownership and intentions to buy, December 2006
- Most second homes are rented out
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- Figure 41: Size of the second-property-owner population, December 2006
- A home in the sun
- Implications and opportunities
- Prospects are positive for the buy-to-let market
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- Figure 42: Size of the prospective target market for second properties, December 2006
- Implications and opportunities
- One in six second property owners have plans to expand their portfolio
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- Figure 43: Intensions to make further purchases, by second property owners, December 2006
- Mortgage holders are just as likely to invest in buy-to-let as outright owners
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- Figure 44: Second property ownership and intentions to buy, by tenure, December 2006
- Implications and opportunities
- One in ten ABs are second property owners
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- Figure 45: Property ownership and intentions to buy, by gender, age, socio-economic group, region and ACORN category, December 2006
- Implications and opportunities
- Younger age groups are keen to grab a share of the spoils
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- Figure 46: Demographic profile of second property owners and prospective targets – part 1, December 2006
- Implications and opportunities
- The market is heavily skewed towards ABC1s
- Regional hotspots
- One in five second property owners are self-employed
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- Figure 47: Demographic profile of second property owners and prospective targets – part 2, December 2006
- The Internet and broadsheets offer best chance of reaching target market
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- Figure 48: Demographic profile of second property owners and prospective targets – part 3, December 2006
- Implications and opportunities
- Just 1% of homeowners have a buy-to-let mortgage
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- Figure 49: Mortgage ownership, by type, December 2006
- Interest-only mortgages appeal to property investors
- Motivation for taking the interest-only approach
- Further analysis
The Consumer – Attitudes Towards Property Investment
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- Key points summary:
- Confidence in property investment is high
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- Figure 50: Attitudes towards owning and investing in property, December 2006
- Few worry about the possibility of a house price crash
- Interest-rate rises could push up demand for rented property
- Property ownership confers wealth and security
- Luck and location play a part
- Interest-only mortgage holders are most pro property investment
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- Figure 51: Attitudes towards owning and investing in property, by type of mortgage, December 2006
- Urban Prosperity homeowners strongly favour property over a pension
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- Figure 52: Attitudes towards owning and investing in property, by gender, age, socio-economic group, region and ACORN category, December 2006
- Implications and opportunities
- 35-44-year-olds are the most anxious about further interest rate rises
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- Figure 53: Attitudes towards owning and investing in property, by gender, age, socio-economic group, region and ACORN category, December 2006
The Consumer – Targeting Opportunities
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- Key points summary:
- Just over half of all homeowners rule out buy-to-let, yet this still leaves a sizeable target market
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- Figure 54: Agreement with statements about buy-to-let and property investment, December 2006
- While many seek advice, others like to go it alone
- A fifth of prospective targets will search online for buy-to-let mortgage deals
- CHAID analysis
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- Figure 55: Target group identified for the buy-to-let market, December 2006
- Cluster analysis
- What is cluster analysis?
- Property investor clusters
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- Figure 56: Property investor clusters, December 2006
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- Figure 57: Composition of the property investor clusters, December 2006
- Advice-seeker Prospects
- Independent Prospects
- Unlikely
- Uninterested
- Buy-to-let prospects are more likely to be mortgage holders
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- Figure 58: Property ownership by cluster – penetration, December 2006
- Nine in ten advice-seeker prospects think that property is a good investment over the long term
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- Figure 59: Attitudes towards owning and investing in property, by cluster, December 2006
- Younger age groups and ABC1s are more likely to be Prospects…
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- Figure 60: Property investor clusters, by gender, age, socio-economic group, marital status and lifestage, December 2006
- Implication
- …while retirees are mostly Uninterested
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- Figure 61: Property investor clusters, by region, ACORN category, working status and household income, December 2006
- Implication and opportunity
- Internet users have a strong propensity to be Independent Prospects
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- Figure 62: Property investor clusters, by new technology user groups, newspaper readership, commercial TV viewing and supermarket preference, December 2006
- The most popular source of funding is a new mortgage
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- Figure 63: Proposed/actual source of funding for buy-to-let purchase, December 2006
- Implication and opportunity
- Multiple funding options
- Many property investors draw on two or more sources
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- Figure 64: Proposed/actual source of funding for buy-to-let purchase, by top three sources, December 2006
- Those living in Southern regions are most likely to take out a mortgage
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- Figure 65: Proposed/actual source of funding for buy-to-let purchase, by gender, age, socio-economic group, region and ACORN category, December 2006
- Further analysis
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