Top Report-Buy-To-Let Mortgages - UK - March 2014-Market Key Trends and Forecast

Although the new rules linked to the Mortgage Market Review (MMR) will not apply to non-regulated buy-to-let business, there will still be some ramifications, not least because many lenders operate in both the mainstream residential and specialist buy-to-let sector.

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Table of Content


Product definition


Executive Summary

The market

Buy-to-let gross lending up by 32% in 2013

Figure 1: Forecast of new buy-to-let mortgage advances – fan chart, 2008-18

Rental market continues to expand

Figure 2: Key market fundamentals, 2007, 2010 and 2013 (year-end)

New business lending is expected to grow at a solid pace over the next few years

Market factors

Strong demand for rental property in the UK

Market fundamentals

Regulation update

Company, brands and innovation

Leading lenders

Figure 3: Lenders’ share of the buy-to-let market, by balances outstanding, 2013

Greater product activity

Limited adspend due to dominance of intermediated sales

The consumer

One in twenty UK adults are landlords

Figure 4: Proportion of UK adults who let property, December 2013

Means of acquisition

Figure 5: How acquired rental property, December 2013

Buy-to-let borrowers favour interest-only

Buy-to-let investment intentions

Figure 6: Intentions regarding buy-to-let property investment, December 2013

What landlords think about investing in buy-to-let

House price predictions

Figure 7: Expected property price movement over the next 12 months, December 2013

What we think

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Issues in the Market

Contraction in mainstream interest-only mortgages could see more landlords switching to buy-to-let deals

The facts

The implications

Good expansion potential

The facts

The implications

Trend Application

Target mortgage holders with buy-to-let promotions

Explore the viability of crowd-funding and co-ownership

Young people can use buy-to-let as a gateway into the property market

Market Drivers

Key points

Buy-to-let mortgage demand is relatively strong

Figure 8: Demand for buy-to-let and prime lending, 2009-13

Spreads on buy-to-let lending fell during the final three quarters of 2013

Figure 9: Spreads on buy-to-let lending – retrospective and forward-looking, 2009-13

Lenders continue to see decent margins on new lending

Figure 10: Bank of England base rate, three-month (monthly average) LIBOR and effective new mortgage rate, January 2007-December 2013

Housing market conditions improve

Rental demand and supply

Void periods, tenant defaults and loan arrears

Average value of rented property grew in 2013

Figure 11: Average value of rented houses versus rented flats, Q1 2008-Q4 2013

Geared investments offer better returns than cash buys

Figure 12: Average net annual compound rate of return over five years – geared versus cash purchase investment, Q1 2008-Q4 2013

Regional variation in geared-investment returns

Figure 13: Annual compound rates of return on buy-to-let investment over a five-year period – geared investments only, by region, Q4 2013

Landlord characteristics and behaviour

Recent regulatory and policy developments

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UK Housing Stock

Key points

The privately rented sector accounts for one in eight UK properties

Figure 14: UK Housing stock, by tenure, 1991-2012

The number of reluctant landlords appears to be on the wane

Buy-to-let mortgages are funding nearly one in three privately rented homes

Figure 15: Share of UK privately rented dwellings that are being purchased with a buy-to-let mortgage, 2002-12

Sharp drop in new private builds exacerbates housing shortage

Figure 16: Number of permanent dwellings completed, by tenure – UK, 2006/07-12/13

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