September 9, 2008

Make it happen

Buy-to-let

Alasdair McDonald and David Wilson, RBS Intermediary Partners

The RBS Intermediary Roadshow

The RBS Intermediary Roadshow

2

Buy-to-let - a silver lining?

The RBS Intermediary Roadshow

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Agenda

• Market overview

• Opportunities for buy-to-let

• Advising on buy-to-let - how you can help

• Why NatWest?

The RBS Intermediary Roadshow

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Market overview

• Pressure on disposable income, weakened housing market

• Movements in the Base rate - how does this affect the market?

• Impacts on interest rates / products:

– credit crunch

– funding

– less FTB products, lower LTV restrictions

• First-time buyers - less demand due to:

– reduced confidence, less affordability, tighter lending criteria

• Home movers - uncertain market, negative equity threat

• Where does this leave the buy-to-let market?

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Market overview continued

• House prices have fallen in the first half of this year

• Most commentators expect a 20-25% peak to trough fall in house prices

• Since the peak in October 06, house prices have fallen 9%

Quarterly changes in House Price Inflation

-6

-4

-2

0

2

4

6

8

Q1 0

4

Q2 0

4

Q3 0

4

Q4 0

4

Q1 0

5

Q2 0

5

Q3 0

5

Q4 0

5

Q1 0

6

Q2 0

6

Q3 0

6

Q4 0

6

Q1 0

7

Q2 0

7

Q3 0

7

Q4 0

7

Q1 0

8

Q2 0

8

Source: Halifax house price index

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Market overview continued

• The buy-to-let market has continued to grow

• There are now over 1.1 million buy-to-let mortgages outstanding in the market

Buy-to-let mortgages volume (£m)

020,00040,00060,00080,000

100,000120,000140,000

Q32006

Q4 Q12007

Q2 Q3 Q4 Q12008

Q2

Source: CML

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Market overview continued

• The buy-to-let market has continued to grow as a proportion of the total mortgage market, and now accounts for 13% of all mortgage completions

Source: CML

Mortgage market, by value (%)

0%

10%

20%

30%

40%

50%

2005 2006 2007 Q108

Remortgage

Mover

FTB

Buy to let

Other

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Is buy-to-let affected?

Michael Coogan, CML Director General:

“The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers. However we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now”CML press release - 26 August 2008

• The CML expects to see a continued “healthy appetite” for buy-to-let finance in 2008 in line with continued demand for rental property.

The RBS Intermediary Roadshow

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Opportunities in the buy-to-let market?

• June 2008 figures from ARLA:

– 85% of landlords have no intention of selling in the next 12 months

– 72% expect to keep their properties for over 10 years

– 40% of landlords expect to invest further in buy-to-let market

– 60% prefer to arrange mortgages for their buy-to-let properties through a mortgage broker or financial adviser. A further 20% said it depended upon the property in question

• First-time buyers: nervousness / affordability issues mean more will turn to the rental market

• Buying property to let is no longer a short-term gain, but it remains a long-term investment

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Opportunities in the buy-to-let market?

• Migration impact:

– over 500,000 people are coming to Britain from abroad each year - typically they rent

• Regional variations - one size does not fit all

• More and more multiple applicant buyers (deposits/affordability)

• Regeneration opportunities - East London / 2012 Olympics

• University towns

• Let-to-buy

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Broker opportunities for buy-to-let

• Understand the buy-to-let market (finding property, landlord responsibilities)

• Advising on:

– Mortgages – know the market, find the best deal for the customer

– Bridging finance: – understand short-term funding, open / closed loans

– negotiate fees with lender

– Insurance– Look at cross-selling opportunities (e.g. buildings and contents, legal expenses, emergency

assistance, Rent guarantee and Tenant’s insurance)

– look at commission opportunities

• All of these offer new opportunities to generate income

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Broker opportunities for buy-to-let

• Stay in touch - regular 6/12 month reviews– possibilities for fee-based advice

• Generate links with associated professionals - solicitors, estate agents, letting agents

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Buy-to-let knowledge - finding a property

• Build relationships with estate agents / rental associations to understand local opportunities

• Current national and local issues include:

– Northern market prefers ‘renovate to rent’ - suburban houses

– Southern market prefers centrally located new-build flats

– Southern buyers looking North for ‘value’ purchases

– Find key local hotspots for growth (industrial regeneration areas)

• Is the property right for potential tenants (e.g. near to a school for families, transport links, central for flats)

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Buy-to-let knowledge - being a landlord

• Need to know/understand:– Running costs - ground rent, service charges, repairs, letting/management fees

– Landlord and tenant law

– Tenancy agreements

– Safety regulations and responsibilities

– Costs of using a letting agent (could be 10 -15% of the rent)

– Costs/benefits of furnished v unfurnished properties

– HIPs and EPCs are a legal requirement for landlords

• Advising on all of these can offer income opportunities

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Where to go for more help

• A number of associations have plenty of information available:– Council of Mortgage Lenders (www.cml.org.uk)

– Association of Residential Letting Agents (www.arla.co.uk)

– Royal Institution of Chartered Surveyors (www.rics.org/)

– National Association of Estate Agents (www.naea.co.uk)

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Summary

• Buy-to-let market is sustainable

• Significant long-term income opportunities

• Lots of help is available

• NatWest buy-to-let proposition offers a full range of solutions

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NatWest - how we can help

• NatWest is the specialist buy-to-let lender for RBS Intermediary Partners

• Our buy-to-let proposition:

– up to 4 applicants on a mortgage

– a wide range of property types can be accepted

– up to 10 loans accepted (across the RBS Group)

– Fixed £ product/arrangement fees (not a % of the loan)

– Flexible rental cover calculations: 110% at BoE rate + 1.75% for loans 1-5, up to 75% LTV); 125% at BoE rate + 1.75% for loans 5-10 and/or over 75% LTV

– up to 85% max LTV (65% for new build flats)

– fees-free re-mortgage package available

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Contact us

Thank you

For more information:

call: 08459 00 11 10

www.rbsip.com