Daily Research News Online no. 1414 - Buy to Let Outpaces Traditional Mortgage Market

Buy to Let Outpaces Traditional Mortgage Market

February 5 2002

A new report, 'Buy to Let', from Mintel finds an increasing number of British consumers turning to the buy to let market as an alternative to traditional pensions.

Latest research from Mintel finds sales of buy to let mortgages reaching some £5.2 billion in 2001. Over 2 million new mortgages were issued in 2001, of these an estimated 57,100 were buy-to-let (BTL) mortgages. Value growth in the total mortgage market grew by 40% between 1999 and 2001, whereas sales in the BTL mortgage sector increased by a staggering 126%, outpacing the mainstream mortgages market as a whole.

There are now in excess of 2 million households whose home is rented from a private landlord, an increase of more than 250,000 since 1991.

Exclusive research questioning 1,914 adults finds some 42% of consumers would consider a buy to-let investment, with almost a quarter of adults being very favourably disposed towards such investments. Almost two thirds of this latter group feel that rental properties are a good means of providing for their retirement, twice the level seen in the population as a whole.

'The fact that almost two thirds of those who would seriously consider purchasing a BTL property would do so in order to replace or supplement a pension gives an indication of one of the key drivers in the market' comments Toby Clark, Financial Services Analyst.

This is particularly significant given the fact that this response is found so disproportionately among those who are most likely to actually purchase a buy to let property and who can therefore be expected to have given the matter some thought.

'Growing disenchantment with traditional pension products should see more consumers investing in a BTL property rather than a pension, preferring the flexibility and transparency of property investment. Mintel believes that continued dissatisfaction with many aspects of pensions regulation, particularly compulsory annuity purchases, will lead increasing numbers to look for alternatives to traditional pensions' comments Toby Clark.

The attachment that the average British consumer has to bricks and mortar is demonstrated by the common belief that property is safer than equity investments. Some 46% of Britons feel that property is a safer investment than stocks and shares, with over one half of men agreeing with this viewpoint, compared to just over four in ten women. The affection that many consumers hold for property is also reflected in the 42% who feel that putting money into bricks and mortar is always a good idea.

'Consumers' preference for BTL over other areas of investments demonstrates that the British are considerably more willing to invest in a market in which they have first-hand experience than the often mystifying world of equities and bonds' comments Toby Clark.

The greatest worry that consumers have towards BTL investments is renting property out to strangers, a concern shared by some 38% of consumers. Practicality is also an issue for the 26% who do not feel that it would be worth the effort involved in collecting rent and maintaining the property. Interestingly, only 15% were worried about the potential for price crashes or interest rate increases.

More than one third of consumers would not consider buying a property in order to rent it out. Overall, almost three in ten would turn to a high street lender when looking for a BTL mortgage, rising to over 50% of those who would consider investing in rented accommodation. Just 9% of all adults would arrange their buy to let mortgage through an independent financial adviser (one of the most important distribution channels in this market) and a further 5% would choose an estate agent. The same proportion would turn to a specialist lender.

The BTL market is forecast to continue to grow, but by only 28% in volume over the next five years, compared with 75% in just the three years ending in 2001. Although showing a considerable slowdown, the forecast is anticipated to be much better than the property market at large, which is expected to decline after the dynamism of the past. Although remaining a very small part of the total market (just 73,000 even in 2006), BTL is likely to attract interest from those providers looking to counter the tougher times in the mainstream market. By 2006 Mintel believes that BTL will account for some 4.6% of the total volume sector. Furthermore, with house prices outside the South East catching up, the market will become more geographically widespread, although the fact that the price contrasts will be lower will also act as a slight brake on the market.