The private rented sector has almost doubled in size since the first buy-to-let mortgage launched 25 years ago this Friday.
In 1996, the Association of Residential Landlords (ARLA) worked with a small group of lenders including Paragon and NatWest to develop a mortgage product specifically tailored to landlords.
Buy-to-let was devised to encourage new investment into a private rented sector (PRS) that had been in long-term decline.
The recession of the early 1990s exposed a lack of options for those for whom home ownership was out of reach, but who couldn’t qualify for diminished social housing provision.
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The PRS had fallen from over 70% of homes post World War I to less than 10% by the late 1980s, fuelled by the growth of social housing, successive policies to encourage home-ownership and a legal landscape that afforded little legal protection to landlords.
The only way a landlord could finance a property portfolio before BTL mortgages were launched was through commercial mortgage terms.
Often offered a low loan-to-value and with high rates, these didn’t always make the most attractive option for investors.
As a result, it is thought that some landlords used standard residential mortgages but in cases where the tenants weren’t declared, the terms of the mortgage would have been breached.
That was until the launch of the first specialist buy-to-let mortgage in 1996.
At the time, John Major was prime minister, Princess Diana and Prince Charles divorced and mad cow disease was causing panic.
That same year the Spice Girls’ debut single, Wannabe, was released and England hosted the European Football Championships, cheered on by fans singing David Baddiel and Frank Skinner’s Three Lions (Football’s Coming Home).
The private rented sector (PRS) has almost doubled in size, expanding from 2.4 million households in 1996 to 4.4 million in England today.
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Now the PRS accounts for 19% of UK households, which is more than the social housing sector, which accounts for 17% of households.
The portion of homes in the sector classed as “decent” under government standards has consistently increased, rising from 53.2% in 2006 to 76.7% last year.
There has been a 272% increase in PRS homes with an energy rating of C or above since 2009 to 1.8 million today.
Paragon managing director for mortgages Richard Rowntree 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.
“It 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.”
Former Arla Propertymark president Robert Jordan says: “We at Arla realised that the housing market was at 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.”
By Leah Milner
Source: Mortgage Strategy
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