Table of Contents
Introduction
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- Abbreviations
Executive Summary
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- The market
- Market size and forecast
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- Figure 1: Forecast for total value of new buy-to-let mortgage advances, 2006-16
- Channels to market
- Market factors
- Fewer landlords are in arrears but repossession rates have risen
- Lender competition and product availability has pushed down average interest rates
- Demand for privately rented accommodation is strong
- Average value of rented flats and houses increased in 2011
- The number of new properties built continues to decline
- Companies, brands and innovation
- Market share
- Brand promotion
- Who’s innovating?
- The consumer
- Buy-to-let ownership
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- Figure 2: Buy-to-let ownership, January 2012
- House price expectations
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- Figure 3: Performance of property prices, January 2012
- Attitudes towards buy-to-let: alternative investment
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- Figure 4: Buy-to-let as an alternative investment, January 2012
- Attitudes towards buy-to-let: barriers to entry
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- Figure 5: Buy-to-let barriers to entry, January 2012
- What we think
Issues in the Market
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- Are investors more likely to enter or exit the buy-to-let sector?
- Is there too much hassle involved in being a landlord to make it worthwhile?
- Is competition and product availability increasing in the buy-to-let market?
- Will FTBs’ desire for home ownership dampen demand for rental property?
Future Opportunities
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- Lenders and intermediaries can educate buy-to-let investors
- Friends can realise their investment aspirations together
Internal Market Environment
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- Key points
- Buy-to-let sector is outperforming the overall mortgage market
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- Figure 6: Annual percentage change in gross advances – buy-to-let versus total mortgage market, 2002-11
- Fewer buy-to-let loans are in arrears…
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- Figure 7: Percentage of outstanding loans three or more months in arrears – buy-to-let and total mortgage market, 2007-11
- …but repossession rates are higher than in the residential sector
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- Figure 8: Repossession rates for residential mortgages and buy-to-let mortgages, 2010 and 2011
- Landlords are benefiting from historically low interest rates
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- Figure 9: Bank of England base rate, three-month (monthly average) Sterling LIBOR and effective rate on new mortgages, January 2005-December 2011
- Number of privately rented dwellings is increasing year on year
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- Figure 10: Total number of UK dwellings, by tenure, 1996-2010
- Number of buy-to-let mortgages increased by a quarter in the year to February 2012…
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- Figure 11: Buy-to-let product availability, February 2010-12
- …helping to push down average interest rates
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- Figure 12: Buy-to-let average interest rate, February 2010-12
- Demand for buy-to-let lending has been positive since Q2 2010
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- Figure 13: Demand for buy-to-let and prime lending (house purchase), Q1 2008-Q4 2011
Broader Market Environment
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- Key points
- Average value of rented property increased in 2011
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- Figure 14: Average value of rented houses versus rented flats, Q1 2007-Q4 2011
- Difference in returns on geared investments and cash acquisitions
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- Figure 15: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q4 2006-Q4 2011
- Geared investments offer a 21.6% rate of return over five years
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- Figure 16: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q4 2011
- Rising unemployment is a challenge for landlords and tenants
- Changes in household trends could increase demand for private accommodation
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- Figure 18: UK households, by size, 2006-16
- Student numbers help to drive demand for rental accommodation
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- Figure 19: Number of students in Further and Higher Education, 2005/06-2010/11
- Migration trends are having an impact on rental demand
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- Figure 20: Long-term international migration flows – UK, 2000-10 (year end)
- Number of completed dwellings continues to fall
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- Figure 21: Number of permanent dwellings completed, by tenure – UK, 1990/91-2010/11
Competitive Context
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- Key points
- Consumers have a higher preference towards liquid assets
- The majority of landlords plan to maintain their holdings
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- Figure 22: Savings and investment plans, by product, July 2011
SWOT Analysis
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- Figure 23: Buy-to-let – SWOT analysis, 2012
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Who’s Innovating?
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- Key points
- TMW releases iPhone and iPad application for intermediaries
- BM Solutions helps intermediaries to inform landlord clients
- Buy to Let Purchase Plan launched by Islamic Bank of Britain
- NatWest reduces rental cover for higher earners
- Six lenders now offer high-LTV buy-to-let mortgages
- Specialist lender launches 50 new mortgage products
Market Size and Forecast
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- Key points
- The number and value of loans outstanding increased in 2011
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- Figure 24: Number and value of buy-to-let mortgages outstanding, 2000-11*
- Buy-to-let market is well and truly in recovery
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- Figure 25: Volume and value of new buy-to-let mortgages, 2001-11
- Market forecast
- Buy-to-let recovery expected to continue
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- Figure 26: Forecast for total value of new buy-to-let mortgage advances, 2006-16
- Figure 27: Forecast for total value of new buy-to-let mortgage advances, at current and constant prices, 2006-16
- Forecast methodology
Market Share
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- Key points
- LBG and Nationwide play a large part in the buy-to-let market
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- Figure 28: Buy-to-let amounts outstanding – selected lenders only, 2010 and 2011
Companies and Products
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- Lloyds Banking Group
- Nationwide
- Paragon Group
Brand Communication and Promotion
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- Key points
- Buy-to-let advertising expenditure has outperformed the overall market…
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- Figure 29: Total advertising expenditure on mortgage products, by sub-category, 2007-11
- …but remains a niche area when it comes to product adspend
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- Figure 30: Adspend on mortgage products, by buy-to-let advertisers, 2011
Channels to Market
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- Key points
- Direct sales edge ahead in overall mortgage market…
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- Figure 31: Proportional distribution of regulated mortgage sales – total market, by channel, 2006/07-2010/11
- …but the buy-to-let market still has a big focus on intermediated distribution
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- Figure 32: Distribution channels used by selected buy-to-let lenders, 2011
Buy-to-Let Ownership
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- Key points
- One in nine adults rent out a property
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- Figure 33: Buy-to-let ownership, January 2012
- A number of investors have sold their buy-to-let holdings…
- …but a bigger number hope to enter the market or expand their portfolio
- Buy-to-let investing is more accessible to affluent consumers
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- Figure 34: Buy-to-let ownership, by gross annual household income and income tax, January 2012
House Price Expectations
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- Key points
- One in two think that property prices will stay the same in the next year
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- Figure 35: Performance of property prices, January 2012
- Londoners most likely to think that house prices will grow
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- Figure 36: Performance of property prices, by region, January 2012
- Young adults are optimistic about property price growth
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- Figure 37: Performance of property prices, by age, January 2012
- Financial situation has a bearing on house price expectations
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- Figure 38: Performance of property prices, by financial situation, January 2012
- Growth expectations are higher among landlords
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- Figure 39: Performance of property prices, by buy-to-let ownership, January 2012
Attitudes towards Buy-to-Let: Alternative Investment
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- Key points
- Consumers prefer to invest in property than a pension or stocks and shares
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- Figure 40: Buy-to-let as an alternative investment, January 2012
- Over-65s show higher preference for pensions than property investments
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- Figure 41: Buy-to-let as an alternative investment, by gender and age, January 2012
- Landlords favour property over stocks and shares…
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- Figure 42: Buy-to-let as an alternative investment, by buy-to-let ownership, January 2012
- …with a slightly smaller number also showing preference over pensions
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- Figure 43: Buy-to-let as an alternative investment, by buy-to-let ownership, January 2012
- Despite favouring property investments, many consumers are unsure about property prices
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- Figure 44: Performance of house prices, by buy-to-let as an alternative investment, January 2012
Attitudes towards Buy-to-Let: Barriers to Entry
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- Key points
- Effort and property prices are considered a barrier by many consumers
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- Figure 45: Buy-to-let barriers to entry, January 2012
- Buy-to-let investors are less likely to think that being a landlord is “too much hassle”
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- Figure 46: Buy-to-let barriers to entry, by buy-to-let ownership, January 2012
- Prospective buyers are more optimistic about potential profits
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- Figure 47: Buy-to-let barriers to entry, by buy-to-let ownership, January 2012
- Landlords are less critical of the buy-to-let market
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- Figure 48: Buy-to-let barriers to entry, by buy-to-let ownership, January 2012
Appendix – Market Size and Forecast
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- Figure 49: Best and worst case forecast for the value of new buy-to-let mortgage advances, 2011-16
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Appendix – Buy-to-Let Ownership
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- Figure 50: Buy-to-let ownership, by demographics, January 2012
- Figure 51: Buy-to-let ownership, by demographics, January 2012
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Appendix – House Price Expectations
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- Figure 52: Performance of property prices, by demographics, January 2012
- Figure 53: Performance of property prices, by demographics, January 2012
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Appendix – Attitudes: Alternative Investment
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- Figure 54: Buy-to-let as an alternative investment, by demographics, January 2012
- Figure 55: Buy-to-let as an alternative investment, by demographics, January 2012
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Appendix – Attitudes: Barriers to Entry
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- Figure 56: Buy-to-let barriers to entry, by demographics, January 2012
- Figure 57: Buy-to-let barriers to entry, by demographics, January 2012
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- Figure 58: Buy-to-let barriers to entry, by demographics, January 2012
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