All in one basket

The buy-to-let (BTL) market has grown beyond all recognition since its inception 10 years ago. Once viewed as a niche market, BTL lending now accounts for over 700,000 loans each year, according to figures from the Council of Mortgage Lenders (CML).

Buy why has the BTL market grown to such an extent?

There are several factors that have led to the growth of the BTL sector, including shifting social dynamics, changing living circumstances and market conditions. Each of these have acted as catalysts to boost the BTL market, with property investors, lenders and intermediaries each paving their own way in the growing market – one that has changed radically since the launch of the Housing Act in 1988.

Going back to the roots

The 1988 Housing Act played a central role in the introduction of the BTL sector as it gave landlords increased confidence to buy property to rent out. But it was not until almost 10 years later in 1996, that the real BTL boom started.

For many years, BTL remained a niche market, with high product rates and charges associated with it, in addition to a lack of interest in property as an avenue for investment. 10 years ago, the average BTL product rate was 8.7 per cent. Deals are now available on a par with prime residential and mainstream rates, at around the 4.70 per cent mark. There are now a substantial number of lenders active in the BTL market, with more poised to enter in the next few months.

As a result of this, many intermediaries have changed the way they deal with BTL and a growing number of brokers now deal exclusively within the BTL market, looking after clients with large property portfolios.

The BTL market is now a hive of activity, with a growing number of people looking at property as an investment. With questions remaining over pensions and income into retirement, many people see continued house price growth as a way of securing future income. While the number of first-time property investors has continued to creep up over the past few years, established property investors have also been keen to add to their portfolios, buoyed by the continued property price rise and competitive mortgage deals available. For this reason the BTL market is ideal for intermediaries who are keen to push into other sectors.

Entering the BTL fray

People will increasingly look to property as a secure investment, because they see the stock market as a volatile option. Many are also sceptical of the government on the issue of pensions.

As a result of this, lenders have had to adapt, with more and more people entering the BTL fray.

David Lawrenson of, predicts the BTL market will grow almost five-fold in the next 20 years. He says: “60 years ago, well over half of all properties in the UK were privately rented. But the years of post-war rent controls took their toll and private letting collapsed as a business. Everything changed in the late 80s when new laws made it easier for landlords to recover possession of a property. The proportion of houses in the UK that are rented from private landlords is recovering from a 1980’s low of about 9 per cent, but is still only about 11 per cent today. In the long-term, I think privately let property will account for a much higher proportion of the housing stock than today. In fact, we could easily see the proportion of property that is either let out or used as second or holiday homes hit 50 per cent of the UK housing stock by 2026.”

As a result of this predicted sharp rise in the proportion of properties viewed as potential BTL investments, Andy Young, managing director at The Business Mortgage Company (TBMC), admits lenders have had to adapt their offerings from the original BTL propositions of the mid-1990s. He says this change has also led to a flurry of lenders entering the growing market. “The BTL market has been around for years, but before it was classified as commercial loans. As the market grew and developed it has carved out a niche and we came to know it as BTL. Lenders realised they could demand better interest rates on BTL than on domestic mortgages and the competition grew as lenders realised they could make more profit, which is why we’ve seen more products. As competition intensified, the loan-to-value (LTV) increased, rent requirements were reduced and interest rate options were expanded, with the market seeing fixed, discount and capped products also available.”

Catalysts for growth

Another reason for the growth of the BTL sector has been the changing social circumstances. A decade or so ago, many people aspired to own a property at the earliest opportunity. Today, people are less set on the idea. Although this may be as a result of rising house prices, the increase in the number of students and immigrants in the UK cannot be discounted as a factor behind the growth.

While some critics point to the rise of the BTL market as the main reason for the fall in first-time buyers within the market, a significant change in social demographics has prompted the boost in BTL opportunities.

Job prospects and opportunities mean an increasing number of people are happy to rent, with job choice meaning that most people like the opportunity to move if vacancies arise in other parts of the country. People are no longer set on a particular area for their vocation, and are more willing to move in order to secure the job they want. To cater for this need, property investors have exploited towns and cities with close links to main cities, such as London, Birmingham and Manchester, with other investors focusing their investments around universities and colleges.

According to the CML, students typically want a city centre location on a short-term basis, while young professionals may not have the financial resources to step onto the property ladder immediately, and will look for similar products. With job security much less assured than in previous years, the ability to move quickly allows renting professionals to live in a property for a short period, before moving onto another area. Flexibility is now key to many Britons’ living arrangements, making private renting the obvious choice for many people.

Taking advantage

The BTL market has moved rapidly over the past 10 years, with the new entrants and changing social dynamics making renting a more positive proposition for people. Mortgage intermediaries should be keen to take advantage of the growing market. As Young, says: “

The future for BTL looks strong as the three components of the BTL market, lenders, landlords and tenants continue to be attracted to the investment opportunities it presents. For lenders, BTL will remain appealing as it demands higher interest rates. For landlords, house prices are predicted to grow 7 per cent by the Royal Institute of Chartered Surveyors (RICS) and rental yields 6 per cent, while the third component – tenant demand – will remain strong as it becomes increasingly difficult to get on the house ladder with wage increases being completely outstripped by growing house prices.”

For this reason, BTL represents a fantastic opportunity for eager mortgage intermediaries looking to enter a growing and developing market.