1. Buy-to Let &
Let-to-Buy
“MISUSE”
Tony Moroney,
Director - Financial Services
19 June 2013
DISPUTES & INVESTIGATIONS • ECONOMICS • FINANCIAL ADVISORY • MANAGEMENT CONSULTING

2. Navigant Overview
Fast facts
International professional services company
Significant Financial Services presence in US and UK
Publicly traded since 1996 (NYSE:NCI)
2012 revenues: $850 M USD
Approximately 1,900 professionals globally
Services
Management Consulting
Disputes & Investigations
Economic Consulting
Financial Advisory
Industries
Financial Services
Energy
Healthcare
Construction
Public Sector
Navigant Consulting, Inc. is an independent global consulting firm providing specialised
professional services to assist clients in improving performance, resolving conflicts and crisis,
managing and mitigating risk, and capitalising on near and long term business opportunities.
Today’s business and economic environment demands keen market insights and experienced
professionals. Navigant’s team of more than 1,900 professionals is equipped with industry
experience and technical capabilities to assist our clients and provide valuable, real-world,
practical solutions for addressing critical business issues.
We deliver four core services: Disputes & Investigative Services, Management Consulting,
Economic Consulting and Financial Advisory Services. We focus on large industry sectors that
are typically highly regulated and/or are undergoing significant change. Professionals across
the world assist clients in the Construction, Energy, Healthcare, Financial Services and Public
Sectors – driving change and transformation, ensuring compliance and optimising
performance.
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3. STRICTLY PRIVATE & CONFIDENTIAL
Introduction
» Buy-to-let is a British phrase referring to the purchase of a property specifically to let out. As such, a buy-to-let
mortgage is a mortgage specifically designed for this purpose.
» A let-to-buy mortgage is a new slant on buy-to-let that allows homeowners to let their existing home and buy
another home elsewhere.
» The benefits for a buy-to-let landlord can include a stable income from rental receipts, as well as an accumulation
of wealth if house prices go up over time.
» The main risk involves leveraged speculation where the landlord takes a loan to buy the property, with the
expectation that the house can be sold later for a higher price, or that rental income will meet or exceed the
cost of the loan.
» In the past two decades, many mortgage lenders have been willing to provide mortgage finance at attractive interest
rates and mortgage terms. With schemes specifically designed for amateur and professional landlords, buy-to-let
mortgages have undoubtedly stimulated the growth of the Private Rented Sector.
» Buy-to-let continues to grow given the increasing demand for property, increased size of deposit for home buying,
low mortgage interest rates and the perceived lower return on alternative investment options.
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4. STRICTLY PRIVATE & CONFIDENTIAL
The Private Rental Sector
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Building and Social Housing Foundation (BSHF)
• The Private Rental Sector houses 16%
of households. Social housing is at 16%
and owner-occupied housing at 68% of
households.
• The Building and Social Housing
Foundation (BHSF) has predicted that the
private rental sector could account for
one in five households by around 2021.
• In recent years, there has been significant
growth in economically active Housing
Benefit claimants and in higher income
working age households.
• Families now make up around one in six
households in the private rented sector.
• Buy-to-let has an important role to play in
the Private Rental Sector.

5. STRICTLY PRIVATE & CONFIDENTIAL
The “Amateur” Buy-to-Let Investor
» While there has been a significant increase in the
number of BTL lenders and associated products,
most of these are geared towards the small-scale,
part-time amateur investor rather than
professional landlords with extensive portfolios.
» This is not surprising, since the nature of these
loans is fairly similar to standard residential
lending and falls well within lenders
» According to the DCLG Private Landlords Survey
2010, 78% of all landlords only owned a single
dwelling for rent, comprising 40% of the total
private rented dwelling stock, while 95% owned
less than five dwellings in their property
portfolio, accounting for 61% of the entire private
rented housing stock.
» Only 8% of landlords were full time landlords.
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6. STRICTLY PRIVATE & CONFIDENTIAL
Buy-to-Let Mortgages “Perfect Conditions”
» 33,500 mortgages advanced to buy-to-let landlords in the first quarter of 2013 with a value £4.2bn
» There are now around 1.46 million buy-to-let mortgages in the UK, accounting for over 13% of the total estimated
stock of 11.26 million mortgages.
» The latest RICS Residential Lettings Survey shows tenant demand is continuing to grow at a faster pace than new
property becomes available. The gap between the two series according to the RICS appears to be widening
» As a result, it is no surprise that rent expectations remain positive. On average, the RICS expects residential rents to rise
by close to 2% over the next twelve months.
» The Telegraph last week reported that
“Buy-to-let mortgage applications have soared by 26pc in the past year as landlords seek to take advantage of
the “perfect conditions” created by low interest rates and state-subsidised lending”.
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7. STRICTLY PRIVATE & CONFIDENTIAL
The Irish Experience………
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8. STRICTLY PRIVATE & CONFIDENTIAL
Buy-to-Let Mortgage Arrears Still Rising Steeply in Ireland
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• At end-December 2012, there
were 150,344 buy-to-let
mortgages held in the
Republic of Ireland, to a value
of €31.1 bn.
• Buy-to-let mortgages are
15.9% of stock and
represents 21.9% of
mortgage values.
• Of the stock of accounts,
18.9% were in arrears of
more than 90 days.
• Of the outstanding balances,
26.9% of all BTL mortgage
accounts are in arrears of
more than 90 days .

9. STRICTLY PRIVATE & CONFIDENTIAL
Buy-to-Let is Not Risk-Free
» “The continued growth of the UK buy-to-let (BTL) market could lead to weaker future performance of the sector,
especially where lenders are targeting amateur and first-time landlords rather than professional investors”, Fitch Ratings says.
» BTL mortgages increased to 13.4% of total outstanding mortgage lending in the UK at end-March, up from 13% the
previous quarter and 12.9% at the end of Q112.
» “The attractive returns on rental investments available today provides an opportunity for investors to beat the low returns
from savings and other investments”.
» “However, we believe that reversion rates in the market, will make many investments unsustainable once interest rates
return to more normal levels, leading to poor performance, particularly amongst those with little experience of managing an
investment property in a stressed environment”.
» “Although BTL mortgage arrears have been low and repossessions subdued over the last couple of years, supported by a
buoyant rental market and low interest rates, conditions are unlikely to remain so favourable for BTL in the longer term”.
» “When BTL cases are repossessed, losses against the property value can be substantially more than for owner-occupied
property; typical discount on sale for BTL cases is around 50% higher than that on owner-occupied property”.
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10. STRICTLY PRIVATE & CONFIDENTIAL
The Risks of Buy-to-Let
» House Price Crash: for landlords who have geared themselves heavily with a low deposit and/or interest only mortgage
» Contagion: leverage between residential and investment properties and the interplay with consumers long-term plans
» Rental Voids: renters unexpectedly moved jobs and choose to live elsewhere for all sorts of other reasons, which may be
a complete surprise. Even worse, if you fail to attract new tenants to replace existing ones, rental void periods can occur.
» Sharp Rise in Interest Rates: the global financial crisis has caused governments around the world to reduce interest
rates to record lows. From this point, interest rates can only go up by mathematical certainty.
» Squatters/ Non Paying Tenants: an increase in the percentage of non-paying tenants.
» Tenants Damage Your Property: tenants don’t love landlord’s property in the same way in which homeowners may love
their own house; dilapidation’s, accidents and breakages throughout the course of the buy to let investment property.
» Government Policy Changes: taxes can be introduced and/or reliefs reduced and/or eliminated.
» Regulatory Changes: new regulations can have cost implications for investors and/or lenders (therefore pricing)..
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11. STRICTLY PRIVATE & CONFIDENTIAL11
Marketing &
Acquisition
• Access to a holistic picture
of the customer through
Single Customer
View/CRM system
• Targeted marketing
focused on ‘suitability’,
segmenting customers
using flexible analytics and
modelling tools, backed up
with rich customer data
Product
Design
• Products demonstrably
satisfying a market or
customer segment need
• Sophistication level
appropriate to the target
customer requirement
• Profitable but not to the
detriment of the customer
• “Fair” open & transparent
charging structure
• Ongoing product reviews that
validate market, charging
structure, and profitability
Risk, Fraud, and Compliance
• Revised operational risk and credit risk models that are consistent with an FCA Conduct Risk environment
• Automated MI and audit trails of logic and supporting data to evidence suitability through the lifecycle
Customer
Relationship
Management
• Improved understanding of
customer needs throughout
the lifecycle using better
real-time customer data with
“softer information” on
behaviour and attitude
• Automated identification of
lifestyle events to prompt
suitability review
• Working proactively to
ensure arrears cases are
treated in a customer centric
and fair manner
Sales & Service
Distribution
• Enhanced decisioning
ensuring products match
latest customer needs
• Automated triggers/ alerts
for main servicing events,
driven off up to date
information
• Optimised channels
balancing customer need
with cost to serve
• Increased self servicing
through customer access to
supporting tools
All parts of the firm will need to change the way in which they view customers and demonstrate fairness and consideration…
Supporting Functions - Business Services, Technology Services, Finance, HR etc.
• Financial models that reflect the revised product/customer set and suitability based forward projections
• Remuneration model based on customer satisfaction, with roles in place to assure adherence to FCA Conduct Risk principles
The Mortgage Sector is under pressure as regulation is becoming wider and more intrusive. Conduct is the central
plank of regulatory change in Europe and the UK, including the Mortgage Credit Directive and the Mortgage Market
Review which focuses heavily on firm’s customer obligations

12. STRICTLY PRIVATE & CONFIDENTIAL
Conclusion
» Demand for rented property is high and is exceeding supply in most regions and good investment opportunities exist.
» Investors believe there are good returns on rents which seem to be on the increase. Furthermore, there is still a belief that
in the long term they will make a capital gain as housing and lending markets become less rigid.
» Large amounts of capital have been invested in university housing and student demand is high despite increased fees.
» Against this backdrop, Buy-to-Let and indeed, Let-to-Buy, can be a good product for some but not all customers:
› The EC believes that a Buy-to-Let Mortgage is a product which carries a high risk for the consumer
› History has shown that housing is not a “one-way” bet – property prices can fall, as can rents
› Customers must understand the risks as well as the potential rewards.
» Lenders must put themselves in the shoes of those “amateur investors” for whom they are providing mortgages.
» Designing , on-going review, monitoring, governance and withdrawal of buy-to-let mortgages (if appropriate) to
ensure they appropriately meet the needs of private rental sector investors is absolutely critical to ensuring the UK has a:
› viable long-term rental sector and
› sustainable profitable buy-to-let mortgage market.
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