Buy-to-let - UK - March 2009

ISSUES IN THE MARKET
Key issues
Market definitions
Abbreviations
FUTURE OPPORTUNITIES
Being unexciting
You must also get the message and customer service right
But boring does not mean doing nothing
Renting a lifestyle option?
The long-term prospects look good
Think of the cross-sell opportunities
MARKET IN BRIEF
The market shifts down sharply
Figure 1: Number and value of buy-to-let sales, 1999-2008
Supply beginning to exceed demand for rental properties
Reluctant landlords are the most vulnerable in the short term
The risk profile to worsen
Figure 2: The percentage of BTL mortgages in arrears of three months or more, 1999-2008
Landlords make informed judgements
Figure 3: Property investor typologies – landlords v non-landlords, January 2009
A good opportunity to pick up a bargain
Lenders retrench and innovation dries up
Lloyds Banking Group the new market leader
Figure 4: Market share of the leading buy-to-let providers, by amounts outstanding, mid-2008
Heavy reliance on intermediaries
Buy-to-let advertising activity follows the market down
Improvement needed in advertising
Attitudes towards property investment remain largely positive
Key targets for the BTL market
Figure 5: The BTL consumer typologies and their attitudes towards a BTL investment, January 2009
BROADER MARKET ENVIRONMENT
Key points
Looks like trouble ahead
Figure 6: The quarter-on-quarter growth of real GDP, Q1 2003-Q4 2008
Unemployment: Every cloud has a silver lining
Figure 7: The level of unemployment in the UK (All: Aged 16+) seasonally adjusted, 2006-08
Will renting help limit the rise in unemployment?
Figure 8: Household characteristics in England: Recently moved households, by current and previous tenure, 2006/07
Severe pressure on mortgage lenders
Mortgage rates coming down…
Figure 9: UK Inter-bank, three-month rate+ and selected UK bank rates*, January 2001-December 2008
…as banks respond by narrowing their margins, whilst…
Figure 10: How BTL lending spreads changed+, Q2 2007-Q1 2009
…mortgage lenders don’t know which way to turn
Demographic trends should boost rental sector
A strong rise in demand for rented flats
Figure 11: The breakdown of households in England, by tenure and household type, 2007
Greater social segmentation
More local hotspots
Figure 12: The 20 areas of England predicted to see the fastest growth in household numbers, 2001-11
Hotspots around universities
Implications and opportunities
Migration trends: is the tide turning?
Figure 13: Approved applicants for the Worker Registration Scheme+, Q1 2005-Q3 2008
Space in the rented sector
Technologically – Improving the flow of information
INTERNAL MARKET ENVIRONMENT
Key points
Has the love affair with home ownership ended?
Figure 14: Tenure structure of dwellings (index of number of dwellings, 1991=100), 1991-2007
Private renting no longer the Cinderella tenure
Figure 15: Total number of UK private rented dwellings (million) and the share of all dwellings accounted for by private rentals (%), 1981-2007
But is the BTL bubble beginning to deflate?
Figure 16: Share of private rental dwelling being purchased with BTL mortgages, 1998-2008+
House prices – capital gains are disappearing…
Figure 17: Index of average mix-adjusted UK house prices (fed 2002=100), February 2002-November 2008
Figure 18: The average value of rented houses and flats – all regions (£000), 2007 and 2008
…and set to go on shrinking?
Figure 19: The percentage annual change+ in the index of average mix-adjusted UK house prices, January 2006-March 2008
Figure 20: The annual+ percentage change in the average value of rented houses and flats – all regions (£000), February-November 2008
Regions outside the South East gain the most
Figure 21: Index of house prices, by region, November 2008 (February 2002 = 100)
All regions suffer but London and the South East the most
Figure 22: The average value of rented houses (£000), by region, 2007 and 2008
Figure 23: The average value of rented flats (£000), by region, 2007 and 2008
Rental demand strengthens but rental returns dip…
Figure 24: Rental returns (% yield) to landlords, Q3 2003-Q4 2008
…but lower interest rates boost geared returns
Figure 25: The annual rate of return on BTL (geared investment and cash purchase), Q1 2006-Q4 2008
The risk profile of BTL worsens sharply
Figure 26: Buy-to-let mortgage arrears, maximum LTV and minimum rental cover, 1999-2008
Fraud also an issue
Implications and opportunities
Profile of residential investment landlords: who are they
The average landlord is almost 50
Figure 27: Key landlord demographics, average of three quarterly surveys, March 2008, August 2008 and October 2008
Increasing regulation is a cause for concern for landlords
Tenancy Deposit Scheme
Figure 28: Tenancy deposit schemes joined by landlords, September 2008
Plan for enforced self-regulation
The Carsberg Report
Law Commission Report
COMPETITIVE CONTEXT
Key points
Buy-to-let property competes in the asset market
Figure 29: Sources of passive income, 2006/07
Greater competition in the property investment market
Nowhere to turn?
BTL still generates good income returns compared to competitors…
Figure 30: Rental yield on houses compared with the return on bank deposits and the dividend yield on stocks and shares, Q3 2006-Q3 2008
…and proved more resilient than the stock market for capital appreciation
Figure 31: Capital return on property and equity, Q3 2003-Q3 2008
STRENGTHS AND WEAKNESSES
Figure 32: Buy-to-let mortgage market – strengths and weaknesses, 2009
WHO’S INNOVATING?
Key points
A market living on its past reputation?
Key innovations in the past few years go into reverse
Figure 33: Changes in market conditions, 2006-08
Figure 34: The Number of BTL mortgages available, August 2007-January 2009
Low-rate/fixed-rate deals available, but watch those fees
TRADE PERSPECTIVE
About the participating organisations
Late 2009 and 2010 will see the crunch over
The crunch will not have a lasting impact on the market
Accidental or reluctant landlords will only have a temporary impact
Portfolio acquisition possible, an interesting idea but only on the right terms
Some NPD on the horizon
MARKET SIZE AND FORECAST
Key points
Demand for BTL finance falls
Figure 35: How demand for BTL changed+, Q2 2007-Q1 2009
Landlords bunker down in the storm
Figure 36: How landlords are acting over their net investment in residential property (% of landlords), Q4 2004-Q4 2008
Amounts outstanding continue to grow…
Figure 37: Number and value of buy-to-let mortgages outstanding, 1999-2008 (year-end)
…but new business levels are well down
Implications and opportunities
Remortgaging drives the market in 2008
Figure 38: The breakdown (%) of buy-to-let gross advances (value), by type of mortgage, 2002-08
 FORECAST
Figure 39: Forecast of the value and volume of new buy-to-let sales, 2003-13
Factors used in the forecast
MARKET SHARE
Key points
A market in transition
Figure 40: Ten largest buy-to-let lenders, by the number of products on the market, January 2009
A new market leader
Figure 41: Market share of the leading buy-to-let lender groups, by amounts outstanding, mid-2007 and mid-2008
Figure 42: Market share of the leading buy-to-let providers, by amounts outstanding, mid-2008
COMPANIES AND PRODUCTS
Key points
Major reduction in capacity
Fixed deals the norm
Figure 43: Structure of BTL mortgages, January 2009
APR related to period
Figure 44: The APR charged on BTL mortgages, January 2009
Arrangement fees vary significantly
Figure 45: Quoted arrangement fees on a £120,000 BTL mortgage, by type of mortgage, January 2009
Arrangement fee related to period mortgage runs
Figure 46: Quoted arrangement fees on a £120,000 BTL mortgage, by period of mortgage, January 2009
Fees and maximum LTVs on the up
Figure 47: Trends on arrangement fees and maximum LTVs in secured lending, Q2 2007-Q1 2009
Figure 48: The percentage of mortgage products on the market, by LTV (%), January 2008 and January 2009
Little product differentiation
Figure 49: The three main types of BTL mortgages available, January 2009
Mini profiles of the largest buy-to-let lenders
The Lloyds Banking Group
Bradford & Bingley (Mortgage Express)
Paragon Mortgages
The Mortgage Works (Nationwide Specialist Lending)
Bank of Ireland
Northern Rock
Capital Home Loans
BRAND COMMUNICATION AND PROMOTION
Key points
Mortgage adspend follows the market down
Buy-to-let rollercoaster
Figure 50: Buy-to-let mortgage adspend (£000) and share of the mortgage adspend taken by buy-to-let, year to November 2004-08
Buy-to-let providers focus their adspend on the press
Implications and opportunities
C&G the heaviest investor
Figure 51: The 25 largest investors in buy-to-let mortgage advertising, by advertiser, year to November 2004-08
CHANNELS TO MARKET
Key points
The intermediary the prime channel to market
Figure 52: Distribution channels used by leading buy-to-let lenders, 2009
THE CONSUMER – PROPERTY OWNERSHIP AND ASPIRATIONS
Key points
Survey background
Being a landlord is a niche activity
Figure 53: Property ownership and intentions to buy, January 2009
Big rise in rental supply
Figure 54: The number of landlords, 2006-09
Implications and opportunities
Landlords tend to be affluent family adults
Figure 55: The ownership and intention to own a UK rental property by socio-economic group, lifestage, household income and ACORN group, January 2009
Figure 56: The ownership of a UK rental property, by Mintel’s Special Group, January 2009
It’s a middle-aged thing
Figure 57: The ownership of a UK rental property, by age and age by socio-economic group, January 2009
But like policemen, are landlords getting younger?
Figure 58: The ownership of a UK rental property and intention to buy, by age and age by socio-economic group, January 2009
Implications and opportunities
Digital media and broadsheets hit the mark
Figure 59: The ownership of a UK rental property and intention to buy, by technology usage, internet frequency, web use and newspaper readership, January 2009
Implications and opportunities
THE CONSUMER – IMPACT OF THE CRUNCH
Key points
House prices expected to continue to fall
Figure 60: Attitudes towards property prices in the next couple of years, January 2009
Landlords more pessimistic than other adults
Figure 61: Attitudes towards property prices in the next couple of years – landlords v non-landlords, January 2009
Affluent adults more pessimistic
Figure 62: Attitudes towards property prices: average score, by gender, age, socio-economic group, household income and ACORN group, January 2009
Figure 63: Attitudes towards property prices: average score+, by Mintel’s Special Group and age by socio-economic group, January 2009
But landlords still see property as a good investment
Figure 64: Attitudes towards property Investment – landlords v non-landlords, January 2009
Implications and opportunities
But raising finance could be an issue
Figure 65: Attitudes towards mortgage finance – landlords v non-landlords, January 2009
Mortgage lenders need to rebuild bridges
Figure 66: Attitudes towards mortgage lenders – landlords v non-landlords, January 2009
Implications and opportunities
Property investor typologies
Figure 67: Consumer property typologies, January 2009
Figure 68: Consumer views on property investment, by property typologies, January 2009
Landlords are Calculators
Figure 69: Property investor typologies – landlords v non-landlords, January 2009
THE CONSUMER – CONSUMER TARGETS
Key points
Four in ten landlords thinking about profiting from falling prices
Figure 70: Consumer atttudes to a BTL investment – landlords v non-landlords, January 2009
Mature adults the least interested in BTL
Figure 71: Adults unlikely to invest in BTL properties, by gender, age, socio-economic group and ACORN group, January 2009
BTL investor typologies
Figure 72: The seven BTL investment clusters, January 2009
Active investor and experts the key target groups
Figure 73: Details of the seven BTL investment clusters, January 2009
Figure 74: Attitudes towards BTL investment, by the main BTL investment clusters, January 2009
Landlords are Raring to go
Figure 75: BTL investment clusters – landlords v non-landlords, January 2009
Implications and opportunities
Being Anti-BTL does not mean being anti-property
Figure 76: Attitudes towards property investment, by the main BTL investment clusters, January 2009
The affluent are Raring to go…
Figure 77: The main BTL investment clusters, by socio-economic group, ACORN group and household income, January 2009
…the mid-income want to wait
Implications and opportunities
Dreamers may lack the confidence to realise their dreams
Anti-BTLs lack the income
25-54-year-old couples want to get going
Figure 78: The main BTL investment clusters, by gender, age, lifestage and marital status, January 2009
The young singles can only dream
Oldest adults are not interested
South Easterners want to act, while Northerners can only dream
Figure 79: The main BTL investment clusters, by TV region, January 2009
Digital media and the broadsheets are powerful marketing channels
Figure 80: The main BTL investment clusters, by technology used and newspaper readership, January 2009
Intermediaries are key
Figure 81: The main sources of finance advice, by BTL investment clusters, January 2009
Implications and opportunities
Word of mouth and viral marketing work
Saying no with a smile on your face