Buy-to-let Alasdair McDonald and David Wilson, RBS Intermediary Partners The RBS Intermediary Roadshow

Buy-to-let - a silver lining? 20 minute session covering the market, focusing on B2L and how that sector offers opportunities to brokers. We’ll explain a little about the current market situation, show you how B2L is a growing sector, bucking the trend of other parts of the market and show you how you can take advantage of the opportunities that this market offers.

Opportunities for buy-to-let Advising on buy-to-let - how you can help Agenda Market overview Opportunities for buy-to-let Advising on buy-to-let - how you can help Why NatWest? 20 minute session covering the market, focusing on B2L and how that sector offers opportunities to brokers. We’ll explain a little about the current market situation, show you how B2L is a growing sector, bucking the trend of other parts of the market and show you how you can take advantage of the opportunities that this market offers.

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? The current squeeze on credit is pressurising the housing market (next slide will show the Halifax Price Index figures that we all know about). Explain how the credit crunch and inter-bank lending has an impact on the rates that lenders can offer. This then has put pressure on first-time buyers, who now have lower confidence and an inability to take their first steps on the property ladder. But what this does mean is that the rental market offers some opportunities.

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 This chart shows that the growth in house prices is falling year on year. Home owners are now looking at reductions in the value of their home. Source: Halifax house price index

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 CML data shows that the size of the buy-to-let market is still increasing - against that of the trends of the house purchase, home movers and re-mortgage markets. These figures show the situation up to and including Q1 2008. Actual figures: Q3 2006 87,200 Q4 2006 93,200 Q1 2007 99,500 Q2 2007 106,400 Q3 2007 114,600 Q4 2007 120,400 Q1 2008 126,100 Q2 2008 132,500 Source: CML

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 Mortgage market, by value (%) Again, the same figures, but as a percentage, showing that buy-to-let mortgages have grown from 8% of the overall market to 13% in just 3 years. You can see that the the buy-to-let trend continues to grow - albeit slowly, but compared to the big drop in First time buyers and movers, the movement still shows growth. Remortgages as you’d expect show a dramatic increase. The expectation from industry commentators and the CML is that B2L is expected to continue to grow in 2008. Source: CML

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. But its not all bad news, buy-to-let offers a silver lining.

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 Landlords who are already in the b2l market are confident about it as a sustainable sector. They see it as an area of growth - maybe not in the short-term but certainly over longer periods. Because FTBs can no longer afford to buy, they’ll look to rent properties. Buying b2l properties is still seen as a part of long-term pension provision by many landlords. And, importantly, the majority of landlords look to mortgage brokers and intermediaries for advice and guidance on arranging the finance to support them.

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 The impact of immigration and the flow of Europeans in and out of Britain means there is a large number of rental opportunities. Local variations offer good rental opportunities - we’ll come on to a few examples later. Again, affordability has driven the need for people to club together to buy property / house-share Let-to-buy -allows buyers to buy a new home but retain and rent out their existing one. Eligibility depends upon the proposed rental income on the current property being sufficient to cover the cost of the existing mortgage. Lenders will usually exclude the existing mortgage from their calculations and offer a mortgage for a new property based on income multiples. This means you can have two mortgages at normal residential rates. If there’s a reasonable amount of equity in the existing home, consider a let to buy mortgage without a cash deposit. This involves remortgaging the existing home to simultaneously cover the current mortgage and provide an additional advance of funds. The advance can then be used as a deposit on the new home being purchased.

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 So, as a broker, this presents a massive opportunity - its not just about selling the best b2l mortgage on the sourcing system. By understanding the whole market, you can generate income from a number of different sources - mortgages, bridging loans, insurance.

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 You can keep the relationship going with your client over the years. Review their situation regularly - as their needs change, you can offer them a solution, generating income. And, aside from working with the actual landlord, if you get to know the local property environment - learning where regeneration sites are being sold, what housing is going to be available there and explore the possibility of getting referrals from the developers and agents.

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) There are differences around the country on how b2l is seen

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 If you can get to grips with what a landlord has to know, what they have to supply, what regulations they need to comply with - and importantly how they need to insure themselves, this will give you many cross-selling opportunities.

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) And you’re not on your own. These groups offer free advice and guidance on the market. You can download guides from their websites which provide more information on a number of the points I’ve covered today.

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 So, to summarise...

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 So, where does NatWest fit in to this sector. Here’s a summary of what our b2l proposition offers. Up to 4 applicants - plus types of applicants includes foreign national, ex-pats, migrant population Wide range - includes studios, ex-local authority, freeholds Fees-free - including unencumbered properties Link out to residential affordability calculator

Thank you For more information: call: 08459 00 11 10 www.rbsip.com Contact us Thank you For more information: call: 08459 00 11 10 www.rbsip.com Thanks and enjoy the rest of the roadshow.