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