Mortgage Voice: Mapping the Mortgage Market; Meeting Market Need Consumer Attitudes and Analysis April 2014
Contents 1. Methodology 2. Foreword 3. Market overview 4. A healthy market? What help is available? 5. Eligibility and access 6. A nation of homeowners? Why do consumers rent? 7. Rise of the rental market Buy to let landlords - views 8. Conclusion The aim of Mortgage Voice is to investigate consumer attitudes towards, and understanding of, the mortgage market. In particular, what are the major barriers to mortgage lending and how do consumers aspiring homeowners and buy to let landlords feel about the market and its direction of travel? While the market appears buoyant, are issues of access and eligibility continuing to exclude viable candidates and how have demographic changes fundamentally altered what providers need to do? 2
1. Methodology Research was carried out by Watermelon Research (a Chime Plc company) The fieldwork was carried out between 05/02/14 and 19/02/14 via an online survey. The sample was made up of 200 landlords and a representative sample of 2000 consumers (18 65+) 3
2. Foreword Alan Cleary Managing Director, Precise Mortgages By rights, 2014 should be a year to remember for the UK housing market: evidence indicates Help to Buy has succeeded in getting new homes built and getting people to buy; Funding for Lending has begun opening up the wholesale market; GDP is already outpacing expectations (with further gains expected this year); consumer indicators are positive too; and although interest rate rises may be on the horizon, Governor Carney has given his commitment to keep them within reasonable levels going forward. So, with the recovery gaining pace, we should now be in a position where homeowners and buy-to-let investors can benefit from a reinvigorated mortgage market both in terms of improved access to credit and product innovation. As a specialist lender, we think the industry has a duty to provide realistic, sustainable, specialist mortgages that support modern homeowning aspirations and buy-to-let entrepreneurialism. Mortgage Voice provides a compelling and often surprising snapshot of the winners and losers in today s marketplace. It certainly provides plenty of questions for the market, which it will need to address if we intend to meet future market need. 4
3. Market overview The figures speak for themselves, don t they? Lending data from CML shows double digit growth on 2013 figures. The Halifax property survey points to rising house prices not just in London but across the UK too. Confidence has returned to the housing market. This market optimism has dominated the media agenda with the clear indication that mortgages are once again readily available. To some extent lending stats bear this out with strong rises recorded on both first time buyer and buy to let mortgages as well as homemover and remortgages. But is this the full picture? Do today s consumers and buy to let entrepreneurs feel well served by the modern mortgage market? 5
4. A healthy market? While the media has been quick to latch onto the newfound renaissance in the UK mortgage market, consumers remain largely pessimistic. 6
4. A healthy market? Consumers: views on the mortgage market Mortgages are too difficult to obtain for the first time buyer 39% 11% 44% Rental prices are too expensive 44% Mortgage market is in a poor state, with little likelihood of repair 11% Mortgages still favour those with large deposits 53% Mortgage market is in poor health and repairing slowly 46% 39% 53% 17% Rent is lower than repaying a mortgage 23% Unsure of the quality of rented housing 17% 7
4. A healthy market? Opposite ends of the age spectrum (aged 16-24 years old and aged 55 and over) proved the most negative in their responses The middle (aged between 25 and 45) appear more positive There are disparities in industry and consumer sentiment and some key demographic differences for considerations. Respondents were keen that eligibility for a home loan be assessed on an individual basis and ranked improved access to mortgage products highly Responses across UK regions were broadly similar East and West Midlands were on par with London as the most optimistic about the future Northern Ireland was noticeably more bearish 8
4. What help is available? There has been activity from Government to stimulate the first time buyer market but it has low awareness and doesn t go far enough. Impressions and understanding of Help to Buy 40% 22% 10% It s there to help first time buyers. I know very little about it. It s not enough and other stimulants are needed. 9
5. Eligibility & Access Which of the following statements do you most agree with on access to mortgage lending? For many, mortgages are assumed to be beyond their reach with concerns over access and criteria. Just 5% said that access to mortgages had improved across the board while 53% claim that mortgages continue to favour those with large deposits. Barriers to homeownership remain largely financial with saving a large enough deposit the primary impediment whereas elements such as credit score previously considered to be a major concern rank much lower with consumers. 60 % 50 % 40 % 30 % 20 % 10 % 0 % Access to mortgages has improved significantly for all Access to mortgages has improved, but not enough Mortgages still favour those with large deposits to buy a home Mortgages are too difficult to obtain for the first time buyer The mortgage market doesn t cater well enough to those who have blemishes in their credit history Mortgages are too difficult to access if you are self-employed or a freelancer Mortgages are generally complicated, I find it hard to understand the market None of the above *Respondents could choose three options. 10
5. Eligibility & Access CASE STUDY - FIRST TIME BUYER, FEMALE, 28 I d never really thought about saving for a home until circumstances meant that my partner and I had to move from our rented flat and find an alternative. We realised that perhaps it was time to begin considering our options to become homeowners. 70 % 60 % 50 % 40 % What do you see as your current barriers to buying a home?* The main problem was how to pull together the deposit we had no real savings. It wasn t easy but we made the decision to sofa hop with friends and family freeing ourselves of rental costs in order to save as much as possible. We are due to sign the contracts on a flat imminently where we will be paying much less in mortgage repayments than rent and we will have made our first all important step on the property ladder! 30 % 20 % 10 % 0 % Saving a large enough deposit Getting a mortgage Finding an affordable property Paying for another large event first (i.e. marriage or having children) Finding a property in the area/region I d most like to live Complicated buying processes My Credit Score I don t know 11 *Findings based on responses from 689 renters from a base of 2000 respondents. Respondents could choose all options that applied.
6. A nation of homeowners? Homeowning remains an aspiration* 62% of respondents who want to own property in the future want to buy in the next 5 years As do 57% of those under 25 who want to own property in the future But its perceived impact on social standing is diminishing 24% of renters feel adversely affected by not being a homeowner 45 % 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % What is your reason for not seeking to buy a property? *Findings based on responses from 222 renters who admit to aspiring to buy property in the future (total) and 44 under 25s. Respondents could choose all options that applied. 12
6. Why do consumers rent? Debt burden of a mortgage is too high 37% 42% Couldn t save for a deposit No mortgage options available 33% 10% 13% Could live in a larger property 18% Felt they could budget better Could live in a better area 13 *Findings based on responses from 689 renters from a base of 2000 respondents. Respondents could choose all options that applied.
7. Rise of the rental market What are your thoughts on the current rental market? 50 % 45 % 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % Rental prices in my area are too expensive Rental prices in my area are fair My monthly rent is lower than if I were repaying a mortgage My monthly rent is higher than if I were repaying a mortgage I question the quality of what is available on the rental market I don t know With recent statistics suggesting that the number of people renting in London will soon outstrip homeowners, to be followed by other cities, it s clear there needs to be a sea change in the market. This requires new kind of housing industry supporting both individual homeownership and a strong rental sector to meet changing consumer requirements. 14 *Findings based on responses from 689 renters from a base of 2000 respondents. Respondents could choose all options that applied.
7. Rise of the rental market The burgeoning rental market has created a significant opportunity for private landlords; our research shows that they increasingly appear to be heeding the call. What influenced your decision to become a landlord? 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % I inherited a property and chose to let it out I moved in with a partner who already owned a home I let out a property I was unable to sell I bought a property for a child at university and kept it on Becoming a landlord was a short term investment decision Becoming a It is my family landlord was a trade long term investment decision Other Four in ten (41%) private landlords see buy to let as an investment 85% of these are in it for the long term A high proportion (62%) are landlords by circumstance* * Classified as those who inherited a property and chose to let it out (28%), moved in with a partner who already owned their home (20.5%) and those who let out a property I was unable to sell (13.5%). Taken from a survey of 200 landlords. 15
7. Rise of the rental market In terms of realising their investment, 12% plan to sell up in the next five years but far more wish to keep their buy-to-let portfolio until they retire or even beyond. All in all the portrait painted is of a very different buy to let landlord than the speculator of old, one who aims to steadily build up their portfolio over the years and reap the benefits in retirement. 30 % 25 % 20 % 15 % 10 % 5 % What are your aspirations for developing your buy to let portfolio? 27 % 18 % 18 % 12 % 10 % 7 % 7 % 8 % 23 % 0 % I aim to increase my portfolio by 1-2 properties per year I aim to increase my portfolio by more than 2 5 properties per year I aim to increase my portfolio by more than 5 properties per year My buy-to let portfolio will become my main source of income I hope to sell my entire buy-to-let portfolio within 5 years I hope to sell part of my buy-to-let portfolio within 5 years I aim to keep my buyto-let portfolio until retirement I will keep a buy-to-let portfolio beyond retirement I don t know 16 *Findings based on responses from 200 landlords. Respondents could choose all options that applied.
7. Buy to let landlords - views 18% aim to keep their buy-to-let portfolio until retirement 12% hoped to sell their entire buyto-let portfolio within 5 years 18% aim to increase their portfolio by 1-2 properties per year 3-5 27% aim to keep their buy-tolet portfolio beyond retirement 10% say their buy-to-let portfolio would become their main source of income CASE STUDY - BUY TO LET LANDLORD, MALE 29 I bought a cheap flat as a repossession in 2009 but always had a goal of buying a house before I turned 30. In early 2013 the property market lent itself to this opportunity. When the offer was accepted I borrowed half of the deposit from family as I didn t want to raise the money from selling my first flat instead I wanted to hold on to the property and let it in order to pay off the mortgage on the house. This was a conscious decision as part of a longer term plan to acquire and manage more properties. 17 *Findings based on responses from 200 landlords
8. Conclusion The mortgage market is stronger and more resilient than it has been in a long time. However, this confidence and buoyancy has not filtered down to the end consumer. It is important to ask whether the significant demographic and lifestyle changes seen in the last 10 to 15 years have been acknowledged and responded to by industry. We as a nation are renting longer and later in life, are more likely to move from job to job rather than stay put in one position and could very well become a landlord by circumstance rather than design. This puts a clear onus on the mortgage market to work with consumers to develop a truly modern suite of buy to let and homeowner products which meet the needs of modern applicants. There have been some important developments yet it is still early days in broadening the criteria for mortgage approval to support homeowning and buy to let entrepreneurialism. 18