PROPERTY AS AN INVESTMENT - UK - MAY 2018

PROPERTY AS AN INVESTMENT - UK - MAY 2018

May 2018 Mintel Wealth ManagementN/A Price :
$ 2694

The buy-to-let mortgage market is expected to see slower growth in relation to house purchase going forward, reflecting a harsher regulatory climate and less favourable market conditions. High house prices and higher borrowing costs, as well as greater upfront expense for those who already own property, will likely make the purchase of a second or further property too much of a stretch for some prospective investors.

Table of Contents

OVERVIEW
What you need to know
Market definition
EXECUTIVE SUMMARY
The market
Stamp duty increase and regulatory changes hit buy-to-let market
Figure 1: Forecast of new buy-to-let mortgage advances – Fan chart, 2012-22
Remortgage business will drive future growth
Recent regulatory and tax changes impacting market
Tenant demand remains strong
New investors may be deterred by higher interest rates
Companies and brands
LBG and Nationwide are the largest buy-to-let lenders
Figure 2: Share of buy-to-let market, by amounts outstanding (selected lenders), 2017
The market attracts some new entrants
Lenders respond differently to changing market forces
The consumer
5% of UK adults own a second property…
Figure 3: Number of properties owned, April 2018
…15% of these inherited their property
Figure 4: Reasons for owning second home or rental property, April 2018
39% are expecting to sell a second property in the next two years
Figure 5: Short-term property plans, April 2018
Longer-term plans
Many buy-to-let investors are feeling the pressure
Figure 6: Attitudes towards buy-to-let investment by existing investors, April 2018
45% of rental property owners are concerned about interest rates rising
Figure 7: Mortgage ownership, tax status change, and concerns about borrowing rates, April 2018
80% of second property owners say buying property is a good long-term investment
Figure 8: Agreement with statements about property investment and second home ownership, April 2018
11% of non-owners want to buy a second property within two years
Figure 9: Proportion of non-second home owners who are planning to buy additional/investment property, April 2018
What we think
ISSUES AND INSIGHTS
Scope to target first-time property owners
The facts
The implications
Owning a second home is a popular aspiration, but many could be hampered by a less favourable regulatory and tax environment
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Buy-to-let accounts for 17% of all mortgages but lending fell last year…
…due to reduced demand for house-purchase loans…
…linked to adverse changes to tax and regulation
The market will continue to be sustained by strong tenant demand
New investors may be deterred by higher interest rates
MARKET SIZE AND FORECAST
Buy-to-let represents 17% of all mortgages
Figure 10: Number of buy-to-let mortgages outstanding, 2006-17
2017 sees first fall in new business since 2009
Figure 11: Volume and value of new buy-to-let mortgages, 2013-17
Market outlook: future growth driven by remortgage market
Figure 12: Forecast of new buy-to-let mortgage advances – Fan chart, 2012-22
Figure 13: Forecast of new buy-to-let mortgage business, 2013-22
Forecast methodology
MARKET SEGMENTATION
Far fewer loans for house-purchase taken out in 2017
Figure 14: New buy-to-let mortgages, by purpose of loan, 2013-17
Remortgage activity should remain strong, over the short term at least…
…although some landlords may find the stricter lending rules a problem
MARKET DRIVERS
Ownership of second homes
Figure 15: Second properties owned in the UK or abroad, 2013-14
What makes property so alluring?
It’s tangible
It’s a good long-term investment
It can be passed on
There is strong tenant demand for private rented property
Becoming a property investor has become much more difficult
Could interest in overseas investment increase?
Significant increase in more serious buy-to-let arrears, but total number still only accounts for a tiny fraction of all mortgages
Demand for buy-to-let mortgages expected to weaken in 2018…
Figure 16: Demand for buy-to-let and prime lending (quarterly basis), Q1 2012-Q1 2018
…while spreads are predicted to narrow significantly
Figure 17: Spreads on buy-to-let lending (quarterly basis), 2012-17
REGULATORY AND LEGISLATIVE CHANGES
Tax changes and tighter lending rules create a tougher environment
Figure 18: Summary of tax and regulatory changes affecting the buy-to-let market, 2016 onwards
Figure 19: Stamp duty land tax rates for residential and additional properties, from April 2016
Figure 20: Schedule of changes to tax relief available to landlords, 2017/18-2020/21
Unoccupied second homes face higher council tax bills
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
The largest lenders…
…and the best performers
New arrivals
Different lenders adopt different strategies
MARKET SHARE
Largest lender, LBG, sees further erosion of market share
Figure 21: Buy-to-let amounts outstanding by selected lenders and estimated market share, 2014-17
Nationwide and RBS both see fall in new buy-to-let lending in 2017
Barclays sees strong rise in buy-to-let balances in 2017
Significant others
COMPETITIVE STRATEGIES
A crowded market but with scope for new entrants to emerge
More lenders target ‘consumer’ market
Others focus on limited companies and professional landlords
Barclays targets first-time buyer landlords
Precise Mortgages launches income supported buy-to-let deal
Lenders start to soften their criteria to ease supply pressures…
…while some lenders withdraw support for portfolio landlords
THE CONSUMER – WHAT YOU NEED TO KNOW
5% of UK adults own a second property…
…15% of these inherited their property
39% are expecting to sell a second property in the next two years
Many buy-to-let investors are feeling the pressure
11% of non-owners want to buy a second property within two years
OWNERSHIP OF FINANCIAL AND PROPERTY ASSETS
A small proportion of UK adults own a second property…
Figure 22: Ownership of financial and property assets, April 2018
…and this is largely the preserve of the wealthy
Figure 23: Proportion who own a second/holiday home or rental property, by socio-economic group and gross annual household income, April 2018
Most of those with a second home or rental property are owner-occupiers
Two fifths of multiple property owners own property abroad
Figure 24: Type of property owned, April 2018
Just 9% of rental/second property owners have four or more properties
Figure 25: Number of properties owned, April 2018
REASONS FOR OWNING SECOND PROPERTY
45% of buy-to-let investors are investing for income, while 40% see it as long-term investment
Figure 26: Reasons for owning second home or rental property, April 2018
12% intend to eventually move into their investment or second property
14% have bought additional property for a child at university
SHORT- AND LONG-TERM PLANS
More intend to sell than buy
Mortgage intentions
Figure 27: Short-term property plans, by owner type, April 2018
8% intend to turn a second property into their main residence
Only half are intending to ultimately sell up
Figure 28: Long-term investment property plans, by owner type, April 2018
A third intend to pass on the property to family or others
BUY-TO-LET INVESTORS – ATTITUDES AND EXPERIENCES
Buy-to-let lenders are starting to feel the pressure…
Figure 29: Attitudes towards buy-to-let investment by existing investors, April 2018
…45% are concerned about future rise in interest rates
Figure 30: Mortgage ownership, tax status change, and concerns about borrowing rates, April 2018
Growing interest in switching status to a limited company
ATTITUDES TOWARD INVESTING IN PROPERTY
65% of second property owners think the stamp duty surcharge is unfair
Figure 31: Agreement with statements about property investment and second home ownership, April 2018
PROSPECTIVE BUY-TO-LET INVESTORS AND SECOND HOME OWNERS
Fairly even interest in overseas as in UK property
Figure 32: Proportion of non-second home owners who are planning to buy additional/investment property, April 2018
Interest in buy-to-let remains healthy
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Consumer research methodology
APPENDIX – MARKET SIZE AND FORECAST
Total market value forecast – best- and worst-case scenarios
Figure 33: Forecast of buy-to-let mortgage advances – best- and worst-case scenarios, at current prices, 2017-22
House-purchase sector forecast
Figure 34: Forecast of new buy-to-let house-purchase advances – Fan chart, 2012-22
Figure 35: Forecast of buy-to-let house-purchase advances – best- and worst-case scenarios, at current prices, 2017-22
Remortgage sector forecast
Figure 36: Forecast of buy-to-let remortgage advances – Fan chart, 2012-22
Figure 37: Forecast of buy-to-let remortgage advances – best- and worst-case scenarios, at current prices, 2017-22
Forecast methodology

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