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Buy-to-let Mortgages - UK - March 2015

Published By :

Mintel

Published Date : Mar 2015

Category :

Banking

No. of Pages : 81 Pages


For the majority of people who will benefit from the pensions freedoms, a buy-to-let investment is unlikely to be either a viable or an enticing investment option. Even ignoring funding complications, the perceived hassle of being a landlord puts many off. As Mintel’s data reveals, among those already retired and who are non-landlords, 94% would not consider investing in property in the future.
Table of Content

Introduction

Product definition
Abbreviations

Executive Summary

The market
New buy-to-let advances increased 24% in 2014
Figure 1: Market forecast of new buy-to-let mortgage loans, 2009-19
The market is set to grow 15% in 2015 to £31.4 billion in new loan values
Market factors
The rental market continues to expand as demand grows
Figure 2: UK Housing stock, by tenure 2009-14
New private builds improve 5% year on year but supply still falls short of demand
Regulation update
Company, brands and innovation
Lloyds Banking Group and Nationwide dominate the market
Figure 3: Market share of sub-total of Top 7 lenders, 2014
Growing presence of other high street banks
New challengers appear
The consumer
6% of GB adults are landlords
Figure 4: Rental property ownership, December 2014
Self-employed individuals were also three times more likely than average to be a landlord
Figure 5: Additional property ownership, by working situation, December 2014
13% of non-landlords aged over 55+ with a pension are considering investing in buy-to-let
Figure 6: Non-Landlords’ investment plans, by investment ownership, December 2014
Roughly one in five landlords have a buy-to-let mortgage
Figure 7: How landlords are funding properties, December 2014
One in 10 landlords are serious considering buying another property to add to their portfolio
Figure 8: Landlords’ future investment plans, December 2014
More than a quarter of non-landlords would consider becoming a landlord
Figure 9: Non-landlords’ future investment plans, December 2014
Barriers to entry for non-landlords
Figure 10: Non-landlords’ investment plans, by attitudes towards buy-to-let, December 2014
What we think

Issues and Insights

The calls for regulation and the impact of the European Mortgage Credit Directive
The issues
The implications
Impact of pensions reform in April 2015
The issues
The implications
England’s shifting housing dynamics
The issues
The implications

Trend Application

55-64-year-olds represent a challenging yet potentially fruitful market
Buy-to-let product marketing should aim for transparency
Proactively regulate the market, or risk state intervention

Market Drivers

Key points
Demand for buy-to-let lending dropped significantly in Q4 2014
Figure 11: Demand for buy-to-let and prime lending, 2010-14
Lenders’ outlook continues to be positive
Figure 12: Expectations of demand for buy-to-let and prime lending, 2010-15
Spreads on buy-to-let lending fell at increasing rates during the final three quarters of 2014
Figure 13: Spreads on buy-to-let lending – retrospective and forward-looking, 2010-14
Mortgage rates level out, but profit margins stay healthy
Figure 14: Bank of England base rate, three-month (monthly average) LIBOR and effective new mortgage rate, January 2009-November 2014
Low base rates support demand for buy-to-let finance
Arrears and number of repossessions in buy-to-let fall in 2014
Figure 15: Total number of property repossessions and buy-to-let repossessions, Q1 2013-Q3 2014
Geared investments offer almost double return rates over cash purchases
Figure 16: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q1 2009 – Q4 2014
Regional variation in geared-investment returns shows North East as biggest winners, while ‘Rest of London’ yields plummet
Figure 17: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q4 2014
Recent regulatory and policy developments

UK Housing Stock

Key points
The privately rented sector accounts for over one in five UK properties
Figure 18: UK Housing stock, by tenure, 2009-14
In England the number of renters overtakes the number of mortgage holders for 25-34 year olds
New private builds improve 5% year on year but supply still falls short of demand
Figure 19: Number of permanent dwellings completed, by tenure – UK, 2007/08-13/14

Market SWOT Analysis

Figure 20: Buy-to-let mortgage market – strengths, weaknesses, opportunities and threats, 2015

Who’s Innovating?

Key points
Mainstream lenders cater for the first-time landlords
New challengers appear
Pepper UK
Axis
Fleet Mortgages
The Post Office
Landbay – Peer to Peer funded buy-to-let lending
Paratus AMC launches buy-to-let products through Foundation Home Loans (FHL)
Lenders slash rates in price wars

Market Size and Forecast

Key points
New buy-to-let loans increase at record amount
Figure 21: Volume and value of new buy-to-let mortgages, 2008-14
Growth in value of advances in buy-to-let was strongly driven by re-mortgage loans
Figure 22: Value of advances for new buy-to-let re-mortgage/new house loans, January 2014-November 2014
Mintel expects the market to grow to £44 billion by 2019
Figure 23: Forecast of new buy-to-let mortgage advances – fan chart, 2009-19
Figure 24: Figure 21: Forecast of the number of new buy-to-let mortgage sales – fan chart, 2009-19
Forecast methodology
Fan chart explanation

Market Share

Key points
Lloyds Banking Group and Nationwide lead the market by a large margin
Figure 25: Buy-to-let amounts outstanding – selected lenders only, 2013-14

Companies and Products

Lloyds Banking Group
Buy-to-let product range
Market position
Recent financial performance
Figure 26: Key annual financial data for LBG, 2013-14
Recent activity
Nationwide and The Mortgage Works
Buy-to-let product range
Market position
Recent financial performance
Figure 27: Key interim financial data for Nationwide, H1 2013 and H1 2014
Recent activity
Paragon
Buy-to-let product range
Market position
Recent financial performance
Figure 28: Key annual financial data for The Paragon Group, 2013 and 2014
Recent activity
Barclays
Buy-to-let product range
Market position
Recent financial performance
Recent activity

Brand Communication and Promotion

Key points
Overall mortgage adspend has decreased over the past year
Figure 29: Total advertising expenditure on mortgage products, by sub-category, 2010-14
Limited buy-to-let advertising
Figure 30: Adspend on buy-to-let mortgages, by selected advertisers and media type, 2014

Channels to Market

Key points
The majority of buy-to-let providers utilise intermediaries
Figure 31: Distribution channels used by selected buy-to-let lenders, February 2015
Intermediaries’ role in mortgage sales grow
Figure 32: Proportional distribution of regulated mortgage sales, by channel, 2010-14

Rental Property Ownership

Key points
Survey background
6% report owning at least one rental property
Figure 33: Rental property ownership, December 2014
More than one in 20 people are landlords
People who are married are more likely to be landlords
There are a greater number of landlords in London and the South
Self-employed respondents are three times more likely to be landlords
Figure 34: Rental property ownership, by working situation, December 2014

The Impact of Pension Reform

Key points
Two in five people have some form of pension provision
Figure 35: Ownership of investments, December 2014
13% of non-landlords aged over 55+ with a pension are considering investing in buy-to-let…
Figure 36: Non-landlords’ investment plans, by investment ownership, December 2014
but pension freedom is unlikely to transform the market

Buy-to-let Mortgage Ownership

Key points
Roughly one in five landlords have a buy-to-let mortgage
Figure 37: How landlords are funding properties, December 2014
Private rented accommodation is roughly half mortgage-funded, half owned outright
30% of rented accommodation is funded through residential mortgages

Reasons for Becoming a Landlord

Key points
Half of all privately rented accommodation is bought specifically as an investment property
Figure 38: Reasons for becoming a landlord, December 2014
Over one in five landlords let out property as a result of changes in living situation

Landlords’ Investment Plans

Key points
One in 10 landlords are serious considering buying another property to add to their portfolio
Figure 39: Landlords’ future investment plans, December 2014
Roughly one in 10 landlords are potentially looking to buy another property to let out

Non-landlords’ Investment Plans

Key points
More than a quarter of non-landlords would consider becoming a landlord
Figure 40: Non-landlords’ future investment plans, December 2014
Non-landlords from Scotland and the North West are most likely to consider investing in property
Figure 41: Non-landlords’ investment plans, by region, December 2014
Almost one in five non-landlords aged 55-64 would consider property investment
Figure 42: Non-landlords’ investment plans, by selected age and working status, December 2014
Disinterest increases greatly from non-landlords aged 65+ and among those already retired
Barriers to entry for non-landlords
Figure 43: Non-landlords’ investment plans, by attitudes towards buy-to-let, December 2014

Attitudes towards Property Investment

Key points
The hassle factor is the main barrier to investing in property
Figure 44: Attitudes towards property investment, December 2014
One in four people would need a mortgage in order to finance a buy-to-let
Figure 45: Attitudes towards property investment among potential investors, December 2014

Appendix

Value forecast – best and worst case scenarios
Figure 46: Forecast of new buy-to-let advances – best- and worst-case scenarios, at current prices, 2014-19
Volume forecast – best and worst case scenarios
Figure 47: Forecast of the number of new buy-to-let mortgages – best- and worst-case scenarios, at current prices, 2014-19

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