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UK Mortgages 2010: Buy-to-let Mortgages and the Rental Sector

  • Publication Date:April 2010
  • Publisher:Datamonitor
  • Product Type: Report
  • Pages:44

UK Mortgages 2010: Buy-to-let Mortgages and the Rental Sector

Gross buy-to-let mortgage lending has collapsed since 2007, as the sector was disproportionately affected by the closure of the wholesale funding markets. The threat of regulation and a continuing lack of finance will limit the prospects for a quick recovery. Nevertheless, demographic factors will continue to drive usage of private rented housing and underpin demand for buy-to-let mortgages.

Scope

  • Describes the competitive environment for buy-to-let mortgages.
  • Assesses the impact of factors such as the funding crisis and prospective regulation on the buy-to-let sector.
  • Sets out Datamonitor's buy-to-let gross lending forecasts for the period 2010-2014.

Highlights

The shortage of funding has forced the withdrawal of most specialist lenders leaving the buy-to-let market dominated by just two providers. The number of available products is over 90% below peak levels. Lack of supply helped to drive down gross lending by over 80% between 2007 and 2009.

The FSA has proposed that the sale of buy-to-let mortgages should be regulated, as they pose a greater risk than that posed by mainstream lending. Many industry sources feel such regulation is unwarranted and would damage the market. They contend that it is the decision on whether to invest in buy-to-let that should be regulated.

The buy-to-let market will be supported in the longer term by strong demand for private rented housing, resulting from factors such as continuing inward migration and a growing student population.

Reasons to Purchase

  • Review the key factors that are currently having an impact on the buy-to-let sector and that will continue to drive the market in 2010 and beyond.
  • Examine the current state of the competitive environment for buy-to-let mortgages.
  • Use Datamonitor's forecasts to help inform your future plans.
  • Datamonitor View
  • Catalyst
  • Summary
  • Analysis
    • The buy-to-let market experienced a significant contraction in 2009
    • Buy-to-let gross lending collapsed in 2008 and 2009
    • Mortgage intermediaries have confirmed the reduction in buy-to-let lending
    • There was no expenditure on buy-to-let-related advertising in 2009
    • Product structure and pricing have remained largely unchanged over the last 12 months
    • The rates offered by a few buy-to-let lenders have started to edge down
    • Maximum LTVs have remained virtually unchanged over the last 12 months
    • There have been few changes to the size and structure of fees over the last year
    • Minimum advances have not changed at all since June 2009
    • Most lenders have not altered their maximum advances
    • Maximum portfolio sizes have remained static
    • Several lenders do not make their offers available to first-time investors
    • The number of buy-to-let lenders continued to fall in 2009
    • The market for buy-to-let loans has become highly concentrated
    • The exodus of lenders has led to a dramatic reduction in the number of buy-to-let products available
    • Credit-impaired products have been completely unavailable for over a year
    • Several factors are responsible for shaping the current market
    • The collapse in wholesale funding has led to a mass exodus of buy-to-let lenders from the market
    • Buy-to-let mortgages have become much more difficult to obtain since the credit crunch
    • Lloyds Banking Group announced new restrictions on buy-to-let lending in late 2009
    • Arrears and repossessions on buy-to-let mortgages remain in line with the wider market
    • Buy-to-let arrears have generally been lower than total market arrears
    • Repossessions in the buy-to-let sector have mirrored the market as a whole
    • Low interest rates have helped to minimize the incidence of arrears and repossessions
    • The buy-to-let sector fell victim to widespread fraud in recent years
    • New-build properties provided plenty of scope for fraudulent activity
    • Investigators have highlighted the growth of mortgage fraud
    • The Financial Services Authority has taken action to help combat fraud
    • The buy-to-let market will gradually recover over the next few years
    • Intermediaries are hesitant about sales prospects for buy-to-let mortgages over the next two years
    • Landlord surveys point to a slowly improving market for the rental sector
    • Only one in 10 landlords are planning to reduce their exposure to the property market during 2010
    • More landlords bought rather than sold properties in 2009
    • A substantial proportion of landlords are having to deal with tenants that are struggling to make payments
    • The popularity of renting has risen over the last year
    • The relative demand for rental property recovered strongly in the second half of 2009
    • Extremely few letting agents are seeing increases in achievable rents
    • The composition of landlords is starting to change
    • The growth in the number of 'reluctant landlords' started to wane in 2009
    • Small-scale landlords are leaving the market
    • Other factors suggest the beginnings of a tentative recovery in the fortunes of the buy-to-let sector
    • The buy-to-let sector has been subjected to close scrutiny by regulators and the government
    • The MMR recommended bringing buy-to-let mortgages under the FSA's remit
    • The treasury is consulting on whether to extend regulation to cover buy-to-let lending
    • The CML has serious worries about the nature of the proposed regulation
    • Other interested parties raised additional concerns
    • The treasury is currently consulting on investment in the private rented sector
    • Buy-to-let gross lending is likely to remain subdued for several years
    • A limited supply of credit will hold back buy-to-let gross advances over the next few years
    • Demand for financing will recover more quickly than supply
    • Datamonitor forecasts buy-to-let gross lending to reach £25.6 billion in 2014
    • Datamonitor has produced two alternative forecasts in light of variable market conditions
    • The optimistic forecast sees buy-to-let gross advances achieving £35 billion by 2014
    • in the pessimistic forecast, buy-to-let gross advances will increase at a slow rate to £11.5 billion in 2014
    • APPENDIX
    • Supplementary data
    • Definitions
    • Bank of England base rate
    • CAGR
    • Gross advances
    • Remortgaging
    • Methodology
    • Further reading
    • Ask the analyst
    • Datamonitor consulting
    • Disclaimer
  • List of Tables
    • Table 1: Variable rates offered by main buy-to-let lenders, June 2009 to March 2010
    • Table 2: Maximum LTVs offered by main buy-to-let lenders, June 2009 to March 2010
    • Table 3: Fees charged by main buy-to-let lenders, June 2009 to March 2010
    • Table 4: Minimum advances offered by main buy-to-let lenders, June 2009 to March 2010
    • Table 5: Maximum advances offered by main buy-to-let lenders, June 2009 to March 2010
    • Table 6: Maximum portfolios allowed by main buy-to-let lenders, June 2009 to March 2010
    • Table 7: Eligibility of first-time buyers by main buy-to-let lenders, June 2009 to March 2010
    • Table 8: Buy-to-let lenders listed by Moneyfacts, March 2010
    • Table 9: Forecast buy-to-let gross advances under the Datamonitor view, 2010-14
    • Table 10: Forecast buy-to-let gross advances under the optimistic view, 2010-14
    • Table 11: Forecast buy-to-let gross advances under the pessimistic view, 2010-14
    • Table 12: Annual buy-to-let gross advances, 1999-2009
    • Table 13: Quarterly buy-to-let gross advances, 2006 Q3 to 2009 Q4
    • Table 14: Changes in gross advances handled by intermediaries between 2008 and 2009 (%)
    • Table 15: Percentage of mortgages more than three months in arrears (%)
    • Table 16: Percentage of mortgages taken into possession (%)
    • Table 17: Sales prospects for mortgages over next two years
    • Table 18: Proportion of landlords who are buying and selling properties (%)
    • Table 19: Proportion of letting offices reporting more tenants than properties (%)
    • Table 20: Proportion of letting offices reporting an increase in rental supply due to an inability to sell properties (%)
    • Table 21: Proportion of letting offices reporting that achievable rent levels have increased (%)
    • Table 22: Advertising spend on buy-to-let mortgages, 2007-08
    • Table 23: Total number of available buy-to-let products
  • List of Figures
    • Figure 1: Buy-to-let gross lending fell drastically between 2007 and 2009
    • Figure 2: The decline in buy-to-let lending activity accelerated in the third quarter of 2008
    • Figure 3: 75% of mortgage intermediaries experienced a fall in buy-to-let gross advances in 2009
    • Figure 4: Buy-to-let advertising activity ground to a halt in 2009
    • Figure 5: The number of buy-to-let products has stagnated since May 2008
    • Figure 6: Arrears on buy-to-let mortgages have generally been lower than for the market as a whole
    • Figure 7: Repossession rates on buy-to-let mortgages have matched those for all mortgages
    • Figure 8: Buy-to-let lending is unlikely to rise or fall sharply in the foreseeable future, according to brokers
    • Figure 9: More letting offices reported seeing landlords buy property than sell in 2009
    • Figure 10: The proportion of letting offices reporting more tenants than properties recovered in 2009
    • Figure 11: Only around one in 10 letting offices saw an increase in achievable rents in 2009
    • Figure 12: Fewer letting offices saw an increase in rental supply due to an inability to sell properties in 2009
    • Figure 13: in Datamonitor's view, buy-to-let gross advances will rise to £25.6 billion by 2014
    • Figure 14: Buy-to-let gross advances will reach £35 billion in 2014 under the optimistic forecast
    • Figure 15: The pessimistic forecast sees buy-to-let gross advances reaching £11.5 billion in 2014
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