A quarter of a century of buy-to-let mortgages

It has been 25 years since buy-to-let mortgages were first launched and in that time the market has seen significant expansion.

The UK’s private rented sector (PRS) has almost doubled in size, according to Paragon Bank, expanding from 2.4 million households in 1996 to 4.4 million in England today.

It now accounts for some 19 per cent of UK households, up from 10 per cent recorded in 2001. It is now also above the provision of social housing, which stands at 17 per cent.

After a period of rapid early growth, subsequent recovery from the global financial crisis and the abandonment of the government’s tenure neutral policy, there is now a PRS that offers tenants more choice with homes that are bigger, better and more energy efficient, says the bank.

The portion of homes in the sector classed as “decent” under government standards has consistently increased, rising from 53.2 per cent in 2006 to 76.7 per cent last year.

There has been a 272 per cent increase in PRS homes with an energy rating of C or above since 2009, totalling 1.8 million today.

Buy-to-let mortgages were introduced after the Association of Residential Landlords (ARLA) began working with a small group of lenders, including Paragon, to develop a mortgage product specifically tailored to landlords.

In doing this, they sought to facilitate and encourage the investment needed to respond to growing tenant demand and a critical shortage of homes in the recession-hit UK housing market.

Richard Rowntree, Paragon’s managing director for mortgages, says: “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.”

Robert Jordan, ARLA Propertymark past president, adds: “We at ARLA realised that the housing market was in a low ebb; houses weren’t selling, which meant a lot of people were letting their homes to move to a new property.

“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. Today, private landlords house approximately five million households across the UK at no cost to the exchequer.”