Happy 25th anniversary Buy To Let

Tempus fugit! I started my career in financial services in January 1993, three years before the birth of the term “buy to let”. 

 

Of course there was a private rental market before then, but the late 80’s and early 90’s saw an exponential rise of economic growth which enhanced consumer confidence in personal investment, and with the branding of this rental sector as ‘Buy To Let’ (coined by the Association of Residential Letting Agents – ARLA – in 1996) so this proposition took hold and many new property entrepreneurs, lenders and estate / lettings agents entered the market. 

 

1996-2021 ... 25 years .... happy anniversary Buy To Let :-) 

 

There has now been quite some period of time that we can reflect back on, and the last 25 years has certainly brought a mixed bag of the good, the bad and the ugly. The market may have formally launched in 1996, but since then we experienced a global credit crisis in 2007/8, we've endured radical and regular legislative changes to how the landlords and tenants business is regulated, and of course an 18 month pandemic has affected rental income flows, the lending criteria and the property market too. The good news is that many lenders have joined in this professional marketplace, as well as a raft of specialist insurers. Many Brokers became specialists in this sector, and of course BTL mortgages have been on the radar too for traditional residential mortgage brokers who also have some property investor clients who they advise as well. On this particular note, I recommend that we all stick to what we’re good at – not all of us are knowledgeable in every area (HTB, equity release, commercial finance etc) and for BTL because it can be a complex product with so many criteria quirks, that dabbling (in any of these specialist areas) should be avoided. 

 

How big is the market nowadays? 2.65 MILLION landlords, 4.4 MILLION people in the private rented sector plus 4 MILLION people in the social rental sector, and over £540 BILLION of BTL mortgages written between 2000 and 2020 … the market is HUGE. And with that comes a wide range of lenders and their own niche propositions and specific criteria requirements. 

 

Keeping up with it all has not been easy. (Thankfully) long gone are the lenders who more or less just asked “are you breathing, yes?, ok here’s a mortgage … or 100”. Regulation has affected propositions, especially in 2016 when the Prudential Regulation Authority introduced the formal term of ‘portfolio landlord’ which impacted on the banks lending criteria and the way they now underwrite larger landlord applications. In addition, we now have to factor in to the underlying costs the introduction of the 3% stamp duty land tax additional property surcharge, the creation of the EPC’s and also the requirements for EICR that ensures the landlord keeps / improves property to a required level that not only helps the landlord to focus on the upkeep of their assets, but, also thankfully, which benefits the tenant, too. 

 

More than 3.6 MILLION homes are now graded as ‘decent’ compared to just 1.4 million in 2006. 

 

Regulation, compliance, legislation, formal tenancy contracts, portfolio landlord criteria, property maintenance obligations etc …… BRILLIANT. Standards have increased over the last 25 years and the ultimate benefit to the landlord is that they now have a far more professional business being run within formal guidelines, and for the tenant, they can be assured that they have a safe, licenced, properly run home, knowing that the person who owns the roof over their head is obliged to meet minimum safety and professional standards, too. 

 

What does the future hold? More innovative mortgage products, an increasing focus on more carbon-neutral / greener properties, a greater opportunity for property investors (individuals, families, companies) to broaden their asset portfolio by investing in HMO’s, holiday lets, family structured financing products, semi commercial, commercial and developments. We also hope that the future brings a looser grip of tax over the landlords business, that standard expenses such as mortgage interest payments are re-allowed as deductible business expenses for personal borrowers, that the Government properly recognises the massive contribution which the combined BTL mortgage market and landlord proposition has provided by fundamentally supporting the increasing demand for housing, and so shouldn’t continue to have to suffer punitive costs and suffocating red tape. 

 

The current Buy To Let mortgage sector is innovative, professional and has weathered a 25 year rollercoaster. The strong have survived, and I look forward to another 25 years (as a BTL Broker and portfolio landlord) working with my many great industry colleagues and property investor Clients. 

 

Howard Reuben 

Principal, H D Consultants 

(and BTL mortgage broker and portfolio landlord for over 20 years)