Celebrating 25 years of Buy-to-Let mortgages

The Buy-to-Let (BTL) mortgage product has bolstered the sector ever since it’s introduction in 1996, spearheaded by the Association of Residential Letting Agents (ARLA).

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During the mid-90s homeowners were reluctant to sell as house prices were low which meant more people were instead becoming landlords to facilliate a move. However, at the time mortgage agreements often included clauses which prohibited homeowners from letting out their properties. 

As a result ARLA worked with a small group of lenders including Paragon Bank and Natwest to develop a BTL mortgage product specifically tailored to support the private rented sector (PRS) which was introduced on 24 September 1996.

When the housing market picked up, those properties sold and there was a need for more rented properties to fill the gap for tenants, but we couldn’t see where we would find more homes to let.

It became clear that the mortgage options weren’t suitable, so together we designed a product, buy-to-let, that would enable more investors to purchase an investment property and let it under the new Housing Act 1988 regulations. Paragon and NatWest were the first two mortgage lenders we approached.

Robert Jordan Former President | ARLA Propertymark

Private rented sector

According to figures released by Savills research, the UK PRS was worth £1.338 trillion in July 2021, including non-mortgaged properties to let. 

The portion of homes in the sector classed as ‘decent’ under the government has jumped from 53.2 per cent in 2006 to 76.7 per cent as of 2020, and the PRS itself has almost doubled over the past 25 years, with nearly 13 million private renters in the UK market. 

Modern issues for landlords include ever-changing legislation which can be difficult for landlords, tenants and agents to keep up to date with. Since 2016, landlords have had to pay a three per cent stamp duty surcharge, tax relief on mortgage interest was taken away during 2017 and the pandemic has left many landlords out of pocket or pursuing rent arrears. 

Additionally, Propertymark members have recently reported that there is currently the highest number of prospective tenants since records began, despite a steady decline in rental stock.

Since being launched as a mortgage product specifically designed for landlords 25 years ago, buy-to-let finance has helped to transform the PRS.

The PRS is now a vital component of the UK’s housing provision, with renting no longer a last resort. The PRS is a tenure of choice as well as need and this is supported by the diversity of those who actively choose rented homes, benefitting from the flexibility they provide.

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Richard Rowntree MD for Mortgages | Paragon