phone icon callback

History of the UK’s Buy to Let Property Market

September 2021 marked 25 years since the arrival of buy to let mortgages. In that time, the UK’s property market has proved its resilience, weathering the storm through two recessions, a global financial crisis, the withdrawal from the European Union, and a pandemic. Throughout this feature, Surrenden Invest looks back at what has shaped the UK’s private rental sector to make it into the thriving entity it is today, and investigates what valuable lessons investors can learn from its growth.

History of UK buy to let

The UK’s buy to let (BTL) sector has come a long way in the past 25 years, growing from a relatively small, niche market into a multi-faceted, lucrative area of the property sector. The first buy to let mortgage products officially launched on September 24, 1996, when the Association of Residential Landlords (ARLA) developed a mortgage product tailored to landlords with a small group of lenders.
This groundwork facilitated much-needed investment into the rental property market in response to rising demand from tenants and an overall shortage of homes across the nation. Since then, buy to let has become a mainstream consideration for buyers and is generally accepted as one of the best performing asset classes. The tangible nature of property and its track record of delivering returns that consistently outpaced stocks and shares have seen its popularity grow considerably.
Today, the widespread availability of BTL mortgage products has seen the number of landlords surge to 2.65 million in the private sector, owning a staggering total of over £1 trillion worth of homes across the UK. But how did buy to let manage to position itself so firmly in the marketplace? And is there still room for property investors to capitalise on the sector?

The 1990s: UK homeownership peak

Despite the availability of BTL mortgage products emerging in the late 90s, the story of the UK’s buy to let sector seemly begins around 20 years earlier.
Following the election of Margaret Thatcher in 1979, major changes took place. At the time, only 55% of Brits owned the home they lived in, yet this figure was about to witness a stark increase, with the introduction of the Right to Buy (RTB) policy introduced under the Housing Act 1980.
By 1995, the Right to Buy policy saw the public sector to private ownership side of the market rapidly shift, with almost 2.1 million homes transferred through the scheme. This, coupled with 100% mortgages, which granted more people than ever before the possibility to access the market, saw the nation witnesses a massive boost in ownership compared to 15 years before.
On top of this, the overall level of new-build housing has dropped since the 1980s. Data from the Office for National Statistics (ONS) showed that house building declined by 44% between 1980 and 2014. This trend continues to be a problem despite the government’s continued promise to deliver 300,000 new homes per year to ease supply issues.
Despite the early 90s recession slowing down the rate of homes sold under the RTB scheme, the 1990s became one of the UK’s strongest decades for homeownership levels. By the turn of the millennium, homeownership levels had hit 70%. At the same time, however, the private rented sector started to gain traction. The introduction of dedicated buy-to-let mortgages in 1996 naturally saw investment levels rise.

Commenting on the introduction of BTL mortgages to the market, John Heron, the former director of mortgages at Paragon Bank, said:

“Borrowers could get finance at up to 75% of the value of the property and affordability would be assessed on the income the property generated and well as the landlords wider financial circumstances. In addition, landlords would be able to make the most efficient use of capital available and maximise their return due to the option to take out interest-only mortgages.”

£181,000

By 2007, rising prices year on year led to the average property price reaching a record high

£25.8bn

Lending fell from £45.7 billion in 2007 to £28.5 billion in 2008

£37.9bn

Market rebounded quickly, rising from £9.6 billion in 2010 to £37.9 billion in 2015

22.0%

The nation’s private rental sector now accounting for 22% of all homes

The global financial crisis

The turn of the millennium is often overlooked for the part it played in shaping today’s property market. Overshadowed by the global financial crisis, homeownership levels started to decline across the UK around 2002.
Data released by the Resolution Foundation helps paint a clearer picture of the market back then. With high house prices, low wage growth and an ongoing lack of available homes, the number of people who owned their own homes started to dwindle, and, somewhat surprisingly, it has not reversed since.
Similar to today’s market, the early 00s saw most people priced out of the market, and by 2007, rising prices year on year led to the average property price reaching a record high of £181,000 at the time. Naturally, with most people unable to get their foot on the proverbial housing ladder, estimates at the time suggest it was around 25% to 40% cheaper to rent than buy, which meant that many people decided to go with this option.
Following the global financial crisis in 2007, the financial downturn and recession of 2008 proved disastrous for the property market, with the value of property and access to lending dropping overnight. For the buy to let mortgage market, approved loans almost halved between 2008 and 2010, with lending falling from £45.7 billion in 2007 to £28.5 billion in 2008, and just £8.6 billion in 2009.
However, the market rebounded quickly, rising from £9.6 billion in 2010 to £37.9 billion in 2015. BTL investment rocketed in the space of just five years, with these peak years forever changing the landscape of the private rented sector. The number of privately rented homes peaked, rising from three million to more than just five million over a short period of time.
Investment levels into the UK’s buy to let property market continues to grow, with the nation’s private rental sector now accounting for 22% of all homes. For the first time in recorded history, the number of private sector tenants is higher than public housing, with just two-thirds of people now owning their own property – the lowest level witnessed since the 1980s.

Today’s UK buy to let market

For property investors and landlords, tenant demand is key to the success of BTL investments. In today’s market, affordability issues and a rise in remote working among Millennials and Gen Z has created a large pool of tenants who do not aspire to own their own home.
Good news for investors, the so-called ‘generation rent’ refers to younger people who opt to rent over buying for a variety of reasons that include location freedom and the desire to work remotely from anywhere in the world. What’s more, rental market allows young professionals to rent city centre properties at a fraction of the cost of buying one, offering them a better work/life balance.
Property investors are presented with an opportunity to invest in new-build housing specifically designed to meet the needs of this large demographic of renters.
Fully managed buy to let property investments like the apartments available through Surrenden Invest have proved popular for investors and renters alike, offering buyers reliable rental returns from properties located in areas with high demand from tenants. To view our latest range of buy to let opportunities, click here.
Aside from Brexit and the pandemic, just like in the 1980s, changes introduced by the government to increase homeownership levels have been one of the biggest challenges that the UK’s property market has faced. A tide of changes has been phased in over the last five years in a bid to improve homeownership levels, with landlords and investors bearing the brunt of policy changes.
The introduction of a 3% levy on Stamp Duty on BTL property, changes to mortgage interest tax relief, more stringent rent background checks, and abolishing estate agency fees have all seen the market shift in recent years. However, despite the introduction of changes, the demand for buy to let remains evidently clear.
With over five million people living in private sector homes owned by more than two million investors across the globe, the UK’s buy to let sector certainly still has room to grow. And for those looking for further evidence of the longevity of the BTL market potential gains it has to offer, it is estimated that property investments purchased back in 1996 have risen by 1,400%.
Get the latest UK property news delivered straight to your inbox by signing up for Surrenden Invest’s monthly newsletter. You will gain valuable insights into trends, plus you will be able to preview new launches before they enter the market.

For more information about buy to let property investment, contact Surrenden Invest today.

Will house prices go down in 2022?

Will house prices go down in 2022?

In the property industry, a New Year brings the age-old question of whether house prices will go down over the next 12 months and whether now is a good time to buy a house. To understand what might happen in the housing market in 2022, it is important to reflect on where things stand today. With the average property price reaching record highs, Surrenden Invest looks at what factors will shape the market over the next year.

£268,349

The average cost of buying a property in the UK stands at £268,349

6.90%

On average, house prices increased by 6.9% in the year to October

+10.6%

Northern Powerhouse cities continued to record the strongest growth rates

+4.80%

Property hotspot Newcastle recorded a +4.8% rise in the year to October 2021

What happened in 2021?

Across the board, data analysed by the industry’s biggest names have shown that UK property prices increased at a double-digit pace throughout 2021.
The latest UK House Price Index – released in December – has reported that the average cost of buying a property in the UK stands at £268,349. This figure is 10.3% higher than the average values a year earlier. Data released by the mainstream lender, Nationwide, support this growth rate, recording the average cost of buying a property at £252,687 – up 10% since November 2020.
The vast nature of the UK’s property market means that indexes will differ based on the composition of the data available to the body at the time of release. Therefore, buyers keeping a close eye on the nation’s property market should delve deeper into headline stats by looking at the regional performance of the property market they are considering for investment in 2022.
Those looking for an in-depth analysis of property prices on a city and regional level are likely to be reassured by the most recent Zoopla UK House Price index, which compares the performance of 20 UK cities. The most recent index reported that, on average, house prices increased by 6.9% in the year to October, with the rate of growth starting to ease following the end of the government’s Stamp Duty Holiday incentive in September.
Despite the slowdown, the report emphasised that the average rate of growth recorded over the last three months is significantly higher than at any time since 2014, helping to highlight the current strength of the market.
Overall, the UK’s largest regional cities significantly outpaced the 2.4% rate of house price growth in London. Northern Powerhouse cities continued to record the strongest growth rates with a +10.6% climb recorded in Liverpool, +8.7% in Manchester, and +7.9% in Sheffield. Even at the lower end of the index, regional property hotspot Newcastle recorded a +4.8% rise in the year to October 2021.
Elsewhere, the UK’s Second City Birmingham recorded an impressive +6.3% growth rate.

Commenting on the overall performance of the marketing during 2021, Jonathan Stephens, Managing Director of Surrenden Invest, said:

“Over the last 12 months, property prices across the nation have continued to rise steadily, and while London’s market has slowed to a certain extent, regional markets have gone from strength-to-strength. This is a trend that we expect will continue throughout 2022.”

What’s happened since the pandemic?

The UK’s property market experienced significant changes throughout the pandemic. From the complete closure of the market during the first national lockdown in March 2020, where the number of properties sold reached the lowest levels since records began, to the introduction of a Stamp Duty Holiday and record-low interest rates, the industry has undoubtedly displayed its resilience during the pandemic.
It is safe to say that Covid-19 dramatically altered everyday life, with many people experiencing a shift in the amount of time spent in the office and commuting to work.
Naturally, this pattern has been reflected across the property market, with homebuyer and renter habits changing over the last 18 months. According to a survey about what people want from property conducted by MFS, a garden or outdoor space is the number one feature for homebuyers in 2021. Square footage is ranked second and access to fast broadband and mobile connectivity third.
The survey, undertaken by 2,000 UK adults searching for a residential property, also highlighted the need for space. The number of Londoners who moved out of the capital and into surrounding areas boosted countryside property sales by £5 million.
However, it is not just the sales market that has undergone changes caused by Covid-19. The easing of lockdown restrictions in the summer and a return to city centre living pushed rental growth to the highest level in 13 years in Q3 2021.
The latest Hometrack Rental Market Report has revealed that average UK rents increased by 4.6% in the year to September. The resumption of a more ‘normal’ life and the commencement of a new academic year have been attributed to a sharp rise in the cost of renting.
Despite the upheaval caused by the pandemic, the demand for property across the country has remained strong. Those considering investing in the sector should pay close attention to trends on the market to secure the best potential gains.

Housing market predictions 2022

It seems obvious, but, at this point, it is worth highlighting the importance of differentiating between the easing of house price growth and values decreasing. For those looking to buy property in 2022, it is doubtful that property prices will dramatically decrease over the next 12 months. Instead, buyers will find that the rate at which values will climb will ease.
Throughout 2020 and 2021, buyers rushed to the market to maximise the government’s Stamp Duty Land Tax (SDLT) savings. As a result, in 2021, it is thought that 1.5 million property transactions will take place. However, the time-sensitive incentive has ended, and transactions are expected to fall to 1.2 million in 2022, which is more in line with the 5-year average.
The window to complete property purchasing during the SDLT naturally created a competitive market. Propertymark’s Housing Market Report reported an average of 19 buyers for every available property.
However, with the urgency to complete now over, property prices are set to continue to rise throughout 2022, with the rate of growth expected to ease. According to Savills, the UK’s mainstream housing market can expect a +3.5% growth rate throughout 2022, citing a shortage of available homes to push prices upward.
Across the property sector, forecasts generally align with this growth rate, with Zoopla expecting a +3% increase, whereas JLL (+4.5%) and Rightmove (+5%) are slightly more optimistic.
In terms of demand, market experts at Zoopla expect that buyer demand will remain strong moving into the new year, with the sector beginning to ‘normalise in 2022’. The property portal cites low supply levels to underpin prices across the next 12 months.
Based on market predictions, it is unlikely that house prices will go down in 2022. Instead, those searching for a property will be comforted by an easing of price rises; however, with a high demand for housing, buyers will likely need to act fast to secure their investment.

£1,058

The average cost of renting is £1,058 per calendar month

0.25%

Bank of England’s decision to raise interest rates from 0.01% to 0.25%

300,000

Construction of new homes well under the government’s target of 300,000 new builds per year

18.80%

Savills predicts a total 5-year price growth of 18.8% in the North West and Yorkshire and Humber

Rental market predictions 2022

For those entering the buy to let property market in 2022, UK property hotspots will continue to benefit from a bounce-back driven by a desire for life to return to ‘normal’. Currently, the average cost of renting is £1,058 per calendar month, and according to JLL, the average rent will increase by 2.5% throughout 2022.
The most recent report from HomeLet has praised the UK’s Private Rented Sector (PRS) as ‘exceptionally resilient’ throughout 2021 and, when it comes to demand, a lack of available new rental properties compared to pre-pandemic levels will continue to push rents upwards in 2022.
For buy-to-let investors, the UK’s property market is a robust choice for rising rental returns and capital gains, making it an excellent choice for investment.

Is now a good time to buy a property?

When it comes to buying a property for personal use or as an investment, it is important to understand your motivations and what’s driving your decision to buy.
Without establishing goals, property investors will not be able to track the performance of their portfolios. Likewise, those buying their primary residence should also consider the reasons behind their purchase. For example, how long are you likely to stay in the property? Upcoming changes to your circumstances and whether you want to buy a new-build or something that requires a bit of work and will therefore require additional funds.
Once you have a clear set of goals, buyers must establish their financial obligations. Securing the best mortgage rate is one practical option to ensure that purchasers get the best deal for their purchase. Despite the Bank of England’s decision to raise interest rates from 0.01% to 0.25% in December 2021, the borrowing cost remains exceptionally low compared to the last five or even ten years.
To determine how much you can borrow, here is a handy mortgage calculator to help investors get an idea of their initial outgoings. Investing in off-plan property through a reputable developer or property consultancy like Surrenden Invest is another way for buyers to reduce the initial outgoings. In addition, buyers purchasing during the off-plan stage are often rewarded with an early investor discount, benefiting from any uplifts in value across the local property market during construction.
For homeowners and investors who are willing to wait for a property to complete, off-plan property investment can offer some of the strongest capital growth potential. Buyers wondering whether now is a good time to buy a property should also consider the cost of waiting for the ‘perfect’ time to invest. With house prices showing no signs of slowing down and the potential for interest rates to climb over the next few years, buyers who act now will benefit from rising prices expected throughout 2022 and beyond.

Positive 5-year forecast

With the construction of new homes well under the government’s target of 300,000 new builds per year, JLL predicts that there will be a shortfall of 500,000 properties from the 1.5 million needed over the next five years. An overall lack of housing across the country will undoubtedly lead to rising prices. JLL expects house prices to climb by 20% between now and 2026, meaning that property investors who enter the market at today’s price could see the value of their assets rise in a relatively short period.
Property investors considering where to invest for the best capital growth potential will continue to benefit from the north-south divide in mainstream house prices. Savills predicts a total 5-year price growth of 18.8% in the North West and Yorkshire and Humber, with these two regions outperforming the 5.6% and 10.4% expected in London and the South East, respectively.

Investing in property in 2022

It is difficult for property investors and homebuyers to ignore the fundamental demographic and economic changes supporting house price growth over the next five years. Buyers looking to invest in property in 2022 are likely to benefit from a real estate consultancy like Surrenden Invest. With over 2,000 properties sold in seven years, our team of professionals is on hand to discuss your investment needs and match our available properties with your financial goals.

For more information about buy to let property investment, contact Surrenden Invest today.