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

Description:    Introduction

                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.


                -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 The buy-to-let gross lending forecasts for the period 2010-2014.


                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

                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 The forecasts to help inform your future plans.

Contents:       DATAMONITOR VIEW
                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
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
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
Supplementary data
Bank of England base rate
Gross advances
Further reading
Ask the analyst
Datamonitor consulting
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
            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
            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
            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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