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The ultimate history of UK buy-to-let

Buy-to-let has come a long, long way over the past few decades. From a place where the homeowner was king, and buying property was seen as one of life’s big milestones, the market has had to find its feet and grow into a functional, convenient option that enhances residents’ lives and provides investors with excellent returns on their spend.

The rise of the homeowner
The 1990s peak
A new millennium
Post-recession
Generation rent
Standing strong

It’s a journey that has brought buy-to-let to a place where it is generally accepted as one of the best asset classes around. With returns consistently outpacing stocks, shares and gold over the past few years, buy-to-let has become a mainstream consideration for buyers, with more than two million private sector investors now owning a staggering total of more than £1 trillion worth of homes across the UK.

But how did BTL manage to position itself so strongly in the marketplace? Here, we take a look at the history of UK buy-to-let and the journey that the private rented sector has gone on through the past few decades, and discuss its rise to prominence and its current strength in the marketplace.

UK buy-to-let history

The rise of the homeowner

Although we see a private rental market at present that is strong and prominent, it hasn’t always been that way. Even as recently as the 1980s, the government’s focus was firmly on making sure that people had the ability to own their own home, a project that would prove altogether more successful than a similar one over 30 years later.

Coming out of the 1970s, the majority of people in the UK lived in council-owned rental properties, which made up most of the homes across towns and cities throughout the country, and particularly in working class areas. However, Margaret Thatcher’s Conservative government wanted to see a change in this, and in October 1980, the Iron Lady would launch the Right to Buy scheme.

This new scheme allowed those who had lived in a council house for more than three years to buy the property at a discount of between 33 per cent and 50 per cent, with a guaranteed 100 per cent mortgage.

It was a chance that was too good to pass up for many people nationwide, and it was initially a roaring success, with hundreds of thousands of former housing association tenants leaving the rental market to become owners for the first time in the 1980s.

In the years between 1952 and 1980, some 370,000 former public sector homes were sold to former tenants, but the rise of Right to Buy would massively outstrip this period. At its peak in 1982, as many as 248,000 homes were sold in the space of just 12 months, giving a substantial boost to the number of homeowners across the UK.

For the buy-to-let property sector, the Housing Act also saw deregulation of private rentals in the 1980s, with freedom for buyers and shorter tenancies making investment a better prospect. And although it was initially slow – only nine per cent of people rented privately in the 1980s – it was the starting point for a market that was set to grow in prominence in the decades ahead.

Home ownership levels

The 1990s peak

Although the recession that took place in the early 1990s dampened the demand for homes being bought through the Right to Buy scheme, it was a trend that continued to trickle slowly, and coupled with other market factors, it meant that the 1990s became one of the strongest decades for home ownership ever.

In the public sector to private ownership side of the market, by 1995, as many as 2.1 million homes had been transferred through the Right to Buy scheme, meaning that there had been a massive boost in ownership when compared to just 15 years before.

On top of this, there was also more confidence in the banking sector, and although it was a time that would later prove to be controversial, what with PPI scandals and mortgage shortfalls in their millions, 100 per cent mortgages became the norm, allowing many people who would previously not have had the ability access to the market.

It created an upward trajectory in ownership that was prevalent throughout the 1990s, and by the turn of the century, the number of homeowners across the country had hit its all-time peak. In 1979, only 55 per cent of Brits owned the home they lived in, but by the turn of the millennium, this had hit over 70 per cent.

At the same time, however, the private rented sector was starting to stir. Deregulation in the 1980s had sown the seeds of interest for investors, but it was the introduction in 1996 of dedicated buy-to-let mortgages, according to the University of Sheffield, that saw investment levels rise. Between 1996 and 2007, rising house prices would mean that early adopters of the sector at this time have seen rising demand ever since, and it’s estimated that investments in 1996 have risen by 1,400 per cent since.

New millennium

A new millennium

Although the turn of the millennium may not have been the turning point for the rental market itself, the actual dawn of a new age was not far away as the 1990s came to a close. Home ownership was starting to slow, and early in the new millennium, the tide started to edge towards an emerging market.

According to the Resolution Foundation, high house prices, weak income rises and a lack of available homes meant that in 2002, the number of people who own their own home started a decline that has surprisingly not reversed since. Although there have been peaks and troughs since, 2002 can be seen as the time when there was a clear shift in the market, and ownership levels have been on the decline ever since.

It was still a period where home ownership was strong, and the market was performing well. But many people being priced out of the market meant that there was a change afoot. By 2007, continual year on year rises and demand for homes meant that in November, house prices reached their highest ever total, hitting over £181,000 on average.

This, of course, meant that many people could not afford to own their own home, and the government estimates that at the time, it was between 24 and 40 per cent cheaper to rent than it was to buy, which meant many people decided this was the way to go. It was the true start of something big.

Post-recession housing

Post-recession

If there’s one moment in time that could be highlighted as a monumental and impactful one for the future of the UK’s housing market, it has to be early 2008. Coming off the back of 2007, when house prices peaked, the financial downturn and recession of 2008 proved disastrous for the property market.

The bubble burst, and house prices plummeted by an average of 16.2 per cent according to Halifax figures, in just 12 months. The effect on sentiment was huge, and people across the UK started to lose confidence in the future of a housing market that had creaked, and eventually broken on the back of poor lending practices and failure of mortgages from the 1990s to mature.

It meant that for the first time, there was a huge swing towards the private rented sector, and people who were flying the nest were starting to look at becoming tenants, unsure of what the future would hold for those who did own a home.

In 2008 alone, there were more than one million homes purchased with buy-to-let mortgages, as the sudden change in the marketplace meant that investors were starting to see the value in investing in rental homes to cater for a rising demographic.

Between 2007 and 2012, the peak years for change in the private rented sector, investments rocketed, and in the space of just five years, the number of rented homes peaked time and again, growing from a little over three million to more than just under five million.

By 2013, Paragon reports that more than £20 billion was loaned to landlords in just 12 months, with this expected to rise at a rate of over 20 per cent for years after.

Such strong investment is something that has continued ever since, with the rising prominence of the rental sector meaning that we now see 22 per cent of all homes in the UK being occupied by private sector tenants. This is now, for the first time ever, higher than public sector housing, and means that less than two-thirds of people now own their own property, the lowest seen in the UK since the early-1980s.

The post-recession period not only saw tenant and landlord numbers rise, however. The demand for homes around this time also allowed for all new demographics to be carved out. This meant that the student property market, once a tiny niche, saw investment of £6 billion in just three years, while Build to Rent’s multi-billion pound injection was fuelled by the arrival of an all-new generation with an all-new attitude.

Generation Rent

Generation rent

One trend that has emerged in the rental market that’s allowed buy-to-let to go from strength to strength is the rise of the so-called generation rent. Made up of what we’d more often refer to as millennials, generation rent is the term for younger people who want to rent rather than buy a home for a number of reasons, including the fact it is:

● More convenient, allowing them to move into homes that are furnished and ready to go without preparation

● Freeing, giving them the ability to move on as and when they need to further their career without having to sell their house first

● Perfect for their lifestyle, with rental homes increasingly being built with younger professionals in mind, and designed to meet their needs

● Providing a great work/life balance; rental homes tend to make up the bulk of busy city centres, and they allow younger people excellent access to transport, work and amenities and nightlife all near to home

Generation rent is one of the main reasons for falling home ownership in the modern market. Fewer under 30s than ever before are buying homes, and the average age of first-time buyers is edging ever closer to 40 as more and more people see renting as a favourable option to buying their own property.

This, when coupled with things such as the lack of stock in the rental market, pushing prices ever higher, the rising demand and the evergreen nature of the market, means that there has never been a better time for investors to buy, and the figures seem to show that they are reacting accordingly.

UK tax changes

Standing strong

Much as in 1980s, one of the biggest challenges faced by the housing market in recent post-recession years has centred around government. Policies from the latest Conservative government have often looked at ways to get more people onto the housing ladder, unfairly punishing rental market investors along the way.

Policy changes in recent years have included:

● An additional three per cent levy on Stamp Duty for those who are investing in rental properties over and above the standard rate

● The retraction of a promise that Build to Rent, a growing sector designed to help increase market supply, would be exempt from new Stamp Duty charges

● A change to taxation that means owners no longer being able to deduct mortgage interest from their taxable income. Read more…

● Banning of all letting agent fees, making the market a more costly place to operate, and causing agents to have to reassess their business plans

However, in spite of the rising tide of changes that threatened to overwhelm the marketplace, not to mention the pressures of Brexit and related political uncertainty, the British buy-to-let market remains strong.

Between 2016 and 2017, the Association of Residential Letting Agents said there has been a rise in demand of some three per cent, while supply has risen 12 per cent in the same period. This shows that even at a time when the government has perhaps lost sight of the value of the rental market, the public and investors have not.

And with more than five million people now living in private sector homes owned by more than two million investors across the globe, it’s clear that the UK buy-to-let sector has room to grow and the strength and support behind it to do so for many years to come.

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