Table of Contents
Introduction
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- Market history
- Product definition and pricing
- Abbreviations
Issues in the Market
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- How important is buy-to-let to the UK’s property market?
- Has the industry started to recover from the financial crisis?
- Is there scope for increased differentiation or innovation?
- Are lenders still risk-averse?
- Has the slowdown hit the public’s appetite for property investment?
Future Opportunities
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- Trend: Property continues to be seen as a solid investment
- Trend: Property substitutes for a pension
Executive Summary
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- The market
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- Figure 1: Forecast of the number of new BTL mortgage sales – fan chart, 2005-15
- 2010 saw the market begin to recover
- The rate of market expansion slowed as a result of the financial crisis
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- Figure 2: Key market fundamentals, 2010 (year end)
- New business will continue to pick up steadily
- Market factors
- Strong demand for rental property in the UK
- Demand for buy-to-let lending expected to be flat in 2011
- Arrears fall, while lenders enjoy fat margins
- Threat of FSA regulation recedes
- Company, brands and innovation
- BM Solutions and The Mortgage Works dominate the market
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- Figure 3: Company share of new buy-to-let advances (shown on a group basis), 2009
- Reduced supply means less competition
- Limited adspend due to dominance of adviser sales
- The consumer
- House price predictions
- Attitudes towards property investment
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- Figure 4: Attitudes towards investing in buy-to-let, January 2011
- What we think
Internal Market Environment
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- Key points
- Impact of financial crisis
- Housing market activity
- Rental demand and supply
- Void periods, tenant defaults and loan arrears
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- Figure 5: Percentage of outstanding loans three or more months in arrears – buy-to let and total mortgage market, 2007-10
- Regulatory developments and policy changes
- Buy-to-let mortgage demand increased in 2010, but will this trend continue in 2011?
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- Figure 6: Demand for buy-to-let and prime lending (house purchase), 2008-10
- Positive lending spreads imply improved credit availability
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- Figure 7: Spreads on buy-to-let lending – retrospective and forward-looking, 2008-10
- Lenders are benefiting from wide margins on new mortgages
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- Figure 8: Bank of England base rate, three-month (monthly average) sterling LIBOR and effective rate on new mortgages, January 2005-December 2010
Broader Market Environment
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- Key points
- Average value of rented property fell during 2010
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- Figure 9: Average value of rented houses versus rented flats, Q1 2007-Q4 2010
- Geared investments offer better returns than cash buys
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- Figure 10: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q4 2006-Q4 2010
- Slight regional variation in geared-investment returns
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- Figure 11: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q4 2010
- Landlord characteristics and behaviour
- Changing social trends fuel demand for rented property
- Rising number of students fuels demand for rented accommodation
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- Figure 12: Number of students in Further and Higher Education, 2005/06-2009/10
- Demand is also being driven by continuing high levels of net migration
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- Figure 13: Long-term international migration flows – UK, 2000-09 (year end)
- Sharp drop in new private builds exacerbates housing shortage
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- Figure 14: Number of permanent dwellings completed, by tenure – UK, 1990/91-2009/10
Competitive Context
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- Key points
- Buy-to-let mortgage sector: hit harder, but bounced back quicker
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- Figure 15: Annual percentage change in gross advances – buy-to-let versus total mortgage market, 2002-10
- Property has lost some of its shine
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- Figure 16: Percentage of GB adults who consider asset the best for long-term investment, September 2007-December 2010
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- Figure 17: Percentage of adults who still think property is a good long-term investment, by age, January 2011
- The privately rented sector accounts for one in eight UK properties
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- Figure 18: Total number of UK dwellings, by tenure, 1996-2010
- Figure 19: Share of private rental dwellings being purchased with a buy-to-let mortgage, 2000-10
Market SWOT Analysis
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- Figure 20: Buy-to-let mortgage market – strengths, weaknesses, opportunities and threats, 2011
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Who’s Innovating?
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- Key points
- Product availability improves, but there’s little in the way of innovation
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- Figure 21: Number of buy-to-let and residential mortgages and number of buy-to-let lenders, 2007-11
- Limited price differentiation
- Trend watch
Market Size and Forecast
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- Key points
- There are now 1.3 million buy-to-let loans outstanding
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- Figure 22: Number and value of buy-to-let mortgages outstanding, 2000-10 (year end)
- Value of new buy-to-let business up by a fifth in 2010
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- Figure 23: Volume and value of new buy-to-let mortgages, 2001-10
- Mintel predicts a steady recovery for the market over the next five years
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- Figure 24: Forecast of the number of new BTL mortgage sales – fan chart, 2005-15
- Figure 25: Forecast of the value of new BTL mortgage advances – fan chart, 2005-15
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- Figure 26: Forecast of new BTL mortgage business, at current and constant prices, 2005-15
- Forecast methodology
- Fan chart explanation
Market Share
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- Key points
- Two lenders dominate the buy-to-let market
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- Figure 27: Buy-to-let amounts outstanding – selected lenders only, 2009 and 2010
Companies and Products
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- Lloyds Banking Group
- Nationwide
- Paragon Group
Brand Communication and Promotion
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- Key points
- Overall mortgage adspend has increased over the past year
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- Figure 28: Total advertising expenditure on mortgage products, by sub-category, 2006-10
- Limited buy-to-let advertising
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- Figure 29: Adspend on mortgage products, by buy-to-let advertisers, year to 31 October 2010
Channels to Market
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- Key points
- Mortgage intermediary share declined in the broader market…
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- Figure 30: Proportional distribution of regulated mortgage sales – total market, by channel, 2006/07-2009/10
- …but they still generate the lion’s share of new buy-to-let business
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- Figure 31: Distribution channels used by selected buy-to-let lenders, 2010
- Online support
Property Ownership and Aspirations
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- Key points
- Survey background
- Three in five UK adults are owner-occupiers
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- Figure 32: Trends in property ownership and buying intentions, 2006-11
- One in 20 own a second home
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- Figure 33: Number of actual and prospective second property owners, January 2011
- One in eight property investors plan to grow their portfolios
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- Figure 34: Intentions to make further property purchases, by second property owners, January 2011
- Mortgage holders are just as likely as outright owners to invest in buy-to-let
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- Figure 35: Property ownership and buying intentions, by tenure, January 2011
- Around one in ten ABs own additional property
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- Figure 36: Property ownership and buying intentions, by gender and socio-economic group, January 2011
- Buy-to-let landlords are typically aged 45-64
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- Figure 37: Property ownership and buying intentions, by age, January 2011
Property Price Predictions
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- Key points
- Most people expect house prices to stagnate or grow slightly in 2011
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- Figure 38: Expected property price movement over the next 12 months, 2009-11
- Property investors are marginally more cautious/negative
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- Figure 39: Expected property price movement over the next 12 months, by owner-occupiers, second property owners and prospects, January 2011
Buy-to-let Investors and Prospects
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- Key points
- One in 20 UK adults own rental property
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- Figure 40: Identifying buy-to-let investors and new prospects, January 2011
- Excellent growth potential
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- Figure 41: Identifying buy-to-let investors and new prospects, by gender and socio-economic group, January 2011
- High levels of interest in buy-to-let among the under-45s
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- Figure 42: Identifying buy-to-let investors and new prospects, by age, January 2011
Attitudes Towards Property Investment
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- Key points
- One in seven UK adults say they’d prefer to invest in property than in a pension
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- Figure 43: Attitudes towards property investment, January 2011
- Existing investors are more positive and pragmatic
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- Figure 44: Attitudes towards property investment, by buy-to-let investors and new prospects, January 2011
Appendix – Demographic Analysis of Property Ownership
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- Figure 45: Property ownership, by demographics, January 2011
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Appendix – Profile of Buy-to-let Investors and Prospects
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- Figure 46: Demographic profile of total sample versus buy-to-let investors and prospects, January 2011
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