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Buy-to-let Mortgages - UK - April 2016

Published By :

Mintel

Published Date : Apr 2016

Category :

Banking

No. of Pages : N/A

The buy-to-let market will face an onslaught of challenges over the coming years, with an influx of regulatory changes that are set to slow down growth. Lenders need to adapt product ranges, support landlords with investment strategy rethinks, and ensure that all new borrowers are equipped with the knowledge to make the best decisions. Strengthening intermediary channels will be crucial.

Table of Content

Overview

What you need to know

Executive Summary

The market
Buy-to-let market enjoys highest level of activity since 2007 crisis
Figure 1: Forecast of new buy-to-let mortgage advances – fan chart, 2010-20
Three fifths of all buy-to-let lending is to re-mortgagors
Figure 2: Breakdown of buy-to-let house purchase and re-mortgage lending, 2010-15
Intermediaries dominate mortgage sales
Companies and brands
Lloyds Banking Group continues to dominate the market
Technology strengthens communication channels and boosts efficiency
The consumer
The proportion of landlords among adults has not grown in the past year
Figure 3: Ownership of rental property, December 2015
32% of landlords are using a buy-to-let mortgage
Figure 4: Buy-to-let mortgage ownership, December 2015
Only two in five landlords fully understand the tax relief rule change
Figure 5: Landlord awareness and understanding of tax relief rule change, December 2015
16% of landlords plan to sell one or more of their rental properties within the next 12 months
Figure 6: Rental property plans for the next 12 months, December 2015
91% of retirees would not consider becoming landlords
What we think

Issues and Insights

Targeted products are needed for more complex landlords
Facts
Implications
Non-landlords should be targeted before they reach age 45 if they are to be persuaded to invest in rental property
The facts
The implications
Too much government regulation comes at the price of tenant protection
The facts
The implications

The Market – What You Need to Know

Buy-to-let market enjoys highest level of activity since 2007 crisis
Three fifths of all buy-to-let lending is to re-mortgagors
Intermediaries dominate mortgage sales

Market Size and Forecast

2015 saw highest lending since 2007
Figure 7: Total value of buy-to-let gross lending per year, 2007-15
Volume of new BTL mortgages increased by 27% in 2015
Figure 8: Volume and value of new buy-to-let mortgages, 2007-15
Demand for buy-to-let lending reached peak level in Q3 2015
Figure 9: Demand for buy-to-let and prime lending, 2011-15
Rate of growth of new advances expected to slow
Re-mortgage activity expected to grow
Buy-to-let mortgage lending expected to reach £48.7 billion in 2020
Figure 10: Forecast of new buy-to-let mortgage advances – fan chart, 2010-20
Figure 11: Forecast of new buy-to-let mortgage advances, at current and constant prices, 2010-20
Forecast methodology

Market Segmentation

Three fifths of all buy-to-let lending is re-mortgage business
Figure 12: New mortgages by purpose of loan, not seasonally adjusted, 2010-15
Figure 13: Breakdown of buy-to-let house purchase and re-mortgage lending, 2010-15

Channels to Market

Intermediaries dominate mortgage sales
Technological developments improve intermediary channel

Market Drivers

The privately rented sector accounts for one in five UK properties
Figure 14: UK housing stock, by tenure, 2009-15
BTL provides stronger yields and capital growth in a low interest rate environment
Increased housing supply is not enough to curb house price inflation
Figure 15: Number of permanent dwellings completed, by tenure – UK 2007-15
Private housing rental price growth shows no signs of slowing
Figure 16: Index of private housing rental prices, January 2011 – December 2015
Landlord confidence crisis
Spreads on buy-to-let lending fell during the final three quarters of 2015
Figure 17: Spreads on buy-to-let lending, 2011-15
The impact of the pension reform
The rise of crowdfunding in the property sector
The threats and opportunities of alternative markets
The looming EU referendum and its impact on the buy-to-let market
HMRC rolls out new digital tax services

Regulatory and Legislative Changes

Concerns about financial stability prompts market intervention
Stamp Duty Land Tax (SDLT) surcharge comes into effect in April 2016
Buy-to-let tax relief restrictions phased in from April 2017
Changes to the wear and tear allowance take effect in April 2016
Smoke alarm rules were implemented on 1 October 2015
The European Mortgage Credit Directive (MCD) came into effect on 21 March 2016
Buy-to-let lending community adopts statement of practice
Financial Policy Committee requests power to regulate buy-to-let mortgage lending
Proposed new rules by the Prudential Regulation Authority (PRA)
Changes to Capital Gains Tax in 2019
The BCBS consultation paper comes into force in 2019 at the earliest

Key Players – What You Need to Know

Lloyds Banking Group continues to dominate the market
Technology strengthens communication channels and boosts efficiency
Advertising expenditure for buy-to-let more than tripled in 2015

Market Share

Lloyds Banking Group continues to dominate the market
Figure 18: Buy-to-let amounts outstanding – selected lenders only, 2013-15
Santander market share growth is substantial

Competitive Strategies

Tightening criteria and amending affordability calculations in line with new risks
Lenders increase rental and interest cover ratios
Lenders increase maximum loans and loan-to-value rates (LTVs)
Santander introduces two-tiered tests
TSB Intermediary introduces a minimum income
Woolwich makes affordability check holistic
New Street Mortgages offers differential rental calculations depending on region
Providers target different landlord categories
HSBC opens up buy-to-let to non-customers
NatWest begins targeting professional landlords and accepts selective licence applicants
Pepper UK targets landlords with a less than perfect credit history
Lenders target older landlords by increasing age caps
Revamping product ranges to remain competitive
Speed, efficiency and transparency boosts
New Street Mortgages provides instant and reliable decision-making with full transparency
NatWest introduces earlier valuation instruction
Paragon Group diversifies funds with Paragon Bank to invest in booming buy-to-let business
Preparations for the European MCD

Launch Activity and Innovation

Limited Company and Consumer BTL products
Communication is key
Mortgage marketplaces offer an alternative way of investing in property

Advertising and Marketing Activity

Total BTL ad spend more than triples over the past year
Figure 19: Total above-the line, online display and direct mail advertising expenditure on buy-to-let mortgages, 2014-15
NatWest accounts for 76% of 2015 total BTL adspend
Press still dominates as advertising channel for this market
Nielsen Media Research coverage

The Consumer – What You Need to Know

The proportion of landlords among adults has not grown in the past year
32% of landlords are using a buy-to-let mortgage
Only two in five landlords fully understand the tax relief rule change
20% of landlords’ future plans have been affected by the stamp duty change
16% of landlords plan to sell one or more of their rental properties within the next 12 months
91% of retirees would not consider becoming landlords

Rental Property and Buy-to-let Mortgage Ownership

6% report owning at least one rental property
Figure 20: Ownership of rental property, December 2015
Self-employed respondents are three times more likely to be landlords
Figure 21: Rental property ownership, by working situation, December 2015
55-64-year-olds are most likely to own multiple buy-to-let properties
Figure 22: Rental property ownership, by age group, December 2015
One third of landlords have a buy-to-let mortgage
Figure 23: how landlords are funding properties, December 2015

Awareness and Understanding of Tax Relief Change

Only two in five landlords fully understand the changes to tax relief
Figure 24: Awareness and understanding of the change to the tax relief rule, December 2015
Providing guidance to boost confidence

The Impact of the Increase in Stamp Duty Rates

17% of landlords have not heard about the change to stamp duty rates
Figure 25: Impact of the 3% surcharge on stamp duty rates, December 2015
20% of landlords say that their future plans have been affected by the changes to stamp duty

Landlords’ Plans for Next 12 Months

16% of landlords plan to sell one or more of their rental properties
Figure 26: Rental property plans for the next 12 months, December 2015
Majority of landlords look set to be inactive in the next year
Some landlords will seek advice on rental property management

Appetite for BTL Property Investment

Attractiveness of rental property investment remains relatively constant
Figure 27: Non-landlords’ future investment plans, December 2015
Younger adults are more open to the idea of becoming a landlord
Figure 28: Proportion of non-landlords who would consider investing in property to let, December 2015
91% of retirees would not consider becoming landlords
Figure 29: Appetite for buy-to-let property investment, by working situation, December 2015
Those buying a home are more than twice as likely to consider becoming landlords than those who own homes outright
Figure 30: Proportion of non-landlords who would consider investing in property to let, by housing situation, December 2015

Barriers to Rental Property Ownership

40% think that buying an additional property to rent out is too expensive
Figure 31: Barriers to rental property ownership, December 2015
24% do not have time to be landlords
13% prefer easy-access savings or investments options
45-54 year old males show more engagement with property market forces
Figure 32: Barriers to rental property ownership, December 2015

Appendix – Data Sources, Abbreviations and Supporting Information

Products covered in this Report
Abbreviations
Consumer research methodology

Appendix – Market Size and Forecast

Forecast – Mortgage advances
Figure 33: Best and worst forecast for buy-to-let mortgage advances, 2015-20
Forecast – Volume of mortgages
Figure 34: Forecast of number of new buy-to-let mortgage sales – fan chart, 2010-2020
Figure 35: Forecast of number of new buy-to-let mortgage sales, at current and constant prices, 2010-2020
Figure 36: Best and worst forecast for buy-to-let mortgages by volume, 2015-20
Forecast Methodology

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