The ‘Buy-To-Let’ (BTL) mortgage is celebrating its Silver Anniversary (25 years) this autumn.
Isn’t it fascinating that a decision between a group of letting agents and bankers all that time ago to offer BTL mortgages has changed the face of the Luton (and national) property market?
But has it been a good thing? Or has it ruined the dreams of many 20 somethings wanting to get on to the property ladder in the last couple of decades?
Let’s look deeper at the whole story, then I will let you, the reader, decide.
And as soon as the BTL mortgage was launched, it was clear there was an enthusiasm and a need for this mortgage product. So much so the size of the Luton private rented sector has grown exponentially.
According to my analysis …
there are 17,203 private rented homes in Luton,
So now we are in 2021, it seems farcical that banks and building societies once thought that properties rented out to private tenants would not create a steady income or increase in value, yet this thought was conventional back in the 1990’s.
It’s no wonder buy-to-let landlords have been given a hard time, with numbers like this.
Yet before we burn every landlord at the stake,
let’s just look at the background story.
The Conservatives introduced the right of a council house tenant to buy their own council house in the early 1980s. Fantastic news for council tenants, yet when a council tenant bought their home, that meant that council housing was taken away from future generations to rent and therefore eroding the council housing stock available. Meaning from the mid 1990s/early 2000s, people who would normally be eligible to rent from the council, yet who couldn’t buy, had only one option … rent from a private landlord.
Meanwhile, in the early/mid 1990s we had 15% mortgage interest rates, unemployment rates of 9% and the 1989 housing crash fresh in people’s memories. Repossessions were rife, making home ownership not the most attractive prospect for 20 somethings.
Luton house prices dropped by
34.5% between 1989 and 1993.
This meant as we entered the mid 1990s, the Luton property market entered a period of stagnation. There were many Luton homeowners that bought their home in the property boom of the late 1980s who were disinclined to sell their home for a loss. They were in negative equity (i.e. they owed more than what the house was worth) yet needed to move because of their growing families.
Renting their home out could have allowed them to buy another home for their growing family, but most banks and building societies were still mostly unreceptive to the notion of these homeowners becoming accidental landlords. Most mortgage terms and conditions usually included clauses that prohibited homeowners from renting out their homes.
So, with growing demand from potential tenants, supply reduced from the sale of Council houses and many homeowners in negative equity, all bound up by the semi-deregulation of the private rented sector with the Housing Act 1988 – you can see that the BTL mortgage came along at the right time.
Early take up of BTL mortgages was slow in the first couple of years.
By the Millennium, according to the Council of Mortgage Lenders, there were just over 120,000 BTL mortgages, with a total value of £9.1 billion.
Yet as we entered the 2000s, they really took off, with every man and his dog jumping onto the BTL bandwagon. So much so that today in the UK, there are …
4.4m private rented homes, 2.1m of them with BTL mortgages
totaling £234.1bn, which is 11.9% of the UK’s GDP!
That’s more than a 1,650% increase in the number of BTL mortgages to landlords and a 2,470% increase in the value of those BTL mortgages.
Since 2001, the number of privately rented households in the UK has grown from 8.3% to 19%.
On the face of it, you could say with the growth of these BTL landlords with their cheap BTL mortgages and often unkempt properties, it has pushed potential homebuyers into squalor. Yet, let’s look a little deeper.
Most Luton landlords are very fair with their Luton tenants providing them with clean, well presented and affordable housing. Of course, there are the rogue landlords but with TV shows such as ‘Landlords from Hell’, the British public are given a distorted and uneven view of private landlords as a whole.
Private sector landlords have played a critical role in providing homes to millions of Brits in this country, let me expand.