Buy to let mortgages have 25 years | Commercial Trust Ltd.
The PRS has doubled in size since the introduction of the first buy-home mortgage 25 years ago this month.
We take a look at the creation of the product, as well as the positive effects it has had on the UK.
History of buying to rent
As early as 1996, the Association of Residential Landlords (ARLA) wanted to develop a mortgage product specific to owners.
They worked with a small group of lenders, including Paragon and NatWest, to find a solution, buy to lease a mortgage.
Until then, the private rental sector had been in constant long-term decline since the war, and new investment was needed.
Investment opportunities were difficult to seize and came with the caveat of high rates.
Former Arla Propertymark President Robert Jordan recalled:
“At Arla, we realized that the housing market was at its lowest; houses weren’t selling, which meant a lot of people let their house move to a new property.
“When the housing market picked up these sold properties and there was a need for more rented properties to fill the tenant shortage, but we couldn’t see where we would find more homes to rent.
“It became clear that the mortgage options weren’t suitable. So we jointly designed a product, buy-let, which would allow more investors to buy investment property and rent it out under the new Housing Act 1988. Paragon and NatWest were the first two mortgage lenders we approached.
The recession of the 1990s highlighted a lack of options for those who fell into a gray area of financial stability.
They could not afford to buy a house but earned too much to qualify for housing benefits.
The number of properties within the PRS had fallen from over 70% of dwellings after World War I to less than 10% by the late 1980s.
This gap was fueled by the growth of social housing, policies to encourage home ownership, and a legal landscape that failed to protect homeowners.
Another stumbling block for portfolio owners prior to the initiation of buying to lease mortgages was that they had to apply for mortgages on commercial terms.
These mortgages were often of a low loan-to-value ratio, unlike the current LTV offer of up to 85%. They also had high rates, which were not attractive to everyone.
The PRS has almost doubled in size since the introduction of buy-to-rent products, from 2.4 million households in 1996 to 4.4 million today, or 19% of total UK households.
Paragon’s Managing Director for Mortgages, Richard Rowntree, said:
“Since its launch as a specially designed mortgage product for homeowners 25 years ago, rental finance has helped transform the SRP.
“It is now a vital part of the UK housing supply, with rental no longer being a last resort.
“PRS is a tenure of choice as well as a need and this is supported by the diversity of those who actively choose rental accommodation, benefiting from the flexibility they offer. “
While the work done by owners is sometimes portrayed in a negative light by the press, citing “greedy” owners and “money-grabbing” intent, it should be remembered that over the last 25 In recent years, owners have changed the game when it comes to private property. housing and play an important role in the housing market.
Buying to lease a mortgage, now a mature financial product with two major economic shocks under its belt, remains unchanged as homeowners look to invest in their future and that of the rest of the UK.
Richard Rowntree, managing director of mortgages at lender Paragon asked the questions:
“Without the growth and modernization of PRS by BTL, how would the significant expansion of the student body over the past 20 years have been facilitated? Where would the millions of people who moved to this country to study or work have lived? What would those who simply cannot or simply do not want to buy a home have done?
“And as we celebrate its quarter of a century, its contribution to the UK property mix must be celebrated, applauded and recognized.”
Buying to rent a mortgage had a significant financial and social effect on the UK, and although it took 18 difficult months to adjust in the wake of Covid-19, homeowners have continued to demonstrate confidence in the face of challenges and in providing a necessary service to those in need of housing.