The Beginnings of Buy To Let Property

The percentage of property sold as Buy To Let property (BTL) has risen steadily since the mid 1990s following the deregulation of the rental market in the 1988 Housing Act which introduced the Assured Tenancy; the widening of its definition in 1996 with the Assured Shorthold Tenancy; the availability of 100% mortgages and the rise of subprime lending that led to the introduction of Buy To Let Mortgages that do not require the property buyer to live in the property being bought.

Buy To Let Favourites

The type of homes being bought as  buy to rent property and the percentage of buy to let loans compared to owner occupier mortgages  vary depending on location but in general, London has had a significantly higher rate of buy to let property (i.e. bought with buy to let loans) than anywhere else in the UK and the most common types of buy to let property  are flats and terrace houses.

Short Term Gains of Buy To Let Property 

The decline in the number of new homes being built in the decades leading up to the rise in the popularity of the buy to let property – especially in the number of local authority homes which reached its lowest point since the 1950s in the mid 1980s and all but ceased in the mid 1990s with less than 1,500 new local authority builds per year since (compared to its peak in the late 1960s of 400,000+) – and the shortfall between supply and demand for new builds since resulted in property prices tripling between 1996 and 2006 making property investment seem like a guaranteed way to make money through short term investment and the further rise of the buy to let property market as people bought property with the intention of renting it for a short while to avoid household running costs then selling it a relatively short time later for a significant profit.

With high consumer confidence and a rise in property development TV  shows, demand for property also came from investors looking to make profit through short term ownership and home improvements.

As a result of rising property prices and investment interest, fewer people could afford to buy  property as their home and the rental market continued to grow, strengthening the position of buy to let landlords.

Long Term Gains of Rental Income

Stagnant wages and increased living costs led to record breaking levels of repossession from 2008 – 2010 which resulted in taxpayers money being used to bailout banks and tighter restrictions on mortgage loans marking an end to the common availability of 100% mortgages, in turn making home ownership even more implausible for young people and first time owners, again strengthening the demand for buy to let properties from property investors looking at monthly income rather then short term gain.

The number of buy to let loans raised by 10,000 from 1999 to 2000 and more than doubled that rising by over 24,000 in the year 2000 to 2001

The Future of Buy To Let Property?

Buy to let lending has traditionally been more concentrated in London where the transient nature of some of its inhabitants together with exceptionally high property prices have resulted in a huge rental market.

Nationally, more than 2 million UK households rent through the private sector but in some areas the popularity of buy to let investment has resulted in a surplus of rental properties available meaning stagnant or even lowered rents, longer periods of unoccupancy and looser checks on tenants.

The Royal Institute of Chartered Surveyors has described the situation as “too many landlords chasing too few tenants”.

Recent government initiatives including less tax relief on mortgage interest, tighter control on rents, a bigger rate of stamp duty for second homes and higher rate of tax on capital gains have reduced the profit in rental properties financed by buy to let mortgages.

Added to the new regulations and the possibility of a smaller population with the effects of Brexit on the work options of EU nationals plus dips in the housing market and a slow down in the increase of property prices, some mid-term investors are now looking to reduce the risk of an uncertain market and cash in on their investments by selling their residential rental properties and/or move their investment to commercial properties that are exempt from some of the new legislation.

Rental property types are likely to change and and the buy to let market is likely to continue to shrink and/or transform but high demand for rental property while there is continued confidence in the long term investment opportunities in the UK property will ensure a buoyancy of the rental market.

For more reading on the history and influences on the buy to let property market, please see the following links.

• https://www.economicshelp.org/blog/15814/housing/uk-housing-history/
• https://www.shawbrook.co.uk/media/234003/BTL-Report-2017.pdf
• http://www.bbc.co.uk/news/magazine-30776306
• http://visual.ons.gov.uk/uk-perspectives-2016-housing-and-home-ownership-in-the-uk/
• http://positivemoney.org/issues/house-prices/
• https://www.economicshelp.org/blog/377/housing/factors-that-affect-the-housing-market/