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 ‘Buy-To-Let’ mortgages has changed the face of the Canterbury (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 we will let you, the reader, decide.

 

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 Canterbury private rented sector has grown exponentially.

 

According to my analysis…

 

 

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 1990s.

 

It’s no wonder BTL  landlords have been given a hard time, with numbers like this.

 

 

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.

 

 

This meant as we entered the mid 1990s, the Canterbury property market entered a period of stagnation. There were many Canterbury 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.

 

 

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…

 

 

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.

 

 

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.

 

If it wasn’t for the rented sector, who would have housed all the extra people in the country over the last 20 years? 

 

What about the exorbitant rents? Would it surprise you that rents have risen below inflation between 2008 and 2019?

Unlike owner-occupier homes, tenants get the benefit of new regulations from Gas Safety Checks and Electrical Safety Reports. Also, BTL landlords will need to improve their Energy Performance Certificate Rating to at least a C rating by the end of 2025 for all new tenancies, and by end of 2028 for all existing tenancies, all at no cost to the tenant and directly saving them money on their heating costs – something that is very important considering the recent rises in gas prices.

 

Canterbury landlords have also had to pay more tax on their Canterbury BTL properties, paying 3% Stamp Duty Tax supplement for the last 5 years, and higher rate tax relief on mortgage interest was taken away four years ago.

Landlords have also had to deal with the financial fallout of the pandemic. It is estimated 1 in 5 tenants in the private rented sector have some form of rent arrears.

 

Also, evictions for rent arrears were banned during the pandemic, meaning some tenants ran up arrears of 12 months or more. According to the National Residential Landlords Association (NRLA), this has left around 210,000 private tenants in the country facing a court order for rent arrears. That would equate to…

 

The idea that Canterbury landlords are middle-class establishment types who are out to take advantage of Canterbury tenants who can’t afford to buy their own Canterbury homes is, in our opinion, just wrong.

 

Of course, there are some rogue Canterbury landlords, yet there are plenty of rogue tenants. Just because you are a Canterbury landlord, it doesn’t mean you are quaffing champagne and rolling in cash.

 

And just under half of those use their rental income to supplement their pensions, and according to the NRLA, a third of landlords have a gross income (excluding income from the BTL property) of less than £20k per annum.

Notwithstanding the challenges, most Canterbury BTL landlords are in it for the long run. BTL mortgages can be secured for less than 1% and demand is on the rise (with rents rising at the highest rate for 10+ years). Of course, Brexit caused a few issues with some Canterbury landlords losing some Eastern European migrants. Yet once things settle down, we will have an influx of people coming from Hong Kong and Afghanistan, wanting to settle down, get jobs and ultimately require a home to live in, which will be a private rented house.

 

We know the Stamp Duty Tax holiday has cleared out the Canterbury landlords who were on the fence for staying in the private rented sector or selling up, but those Canterbury landlords that are left will be more professional and will run their BTL portfolio as a business, not a hobby.

Our final piece of advice to anyone thinking of becoming a BTL landlord in Canterbury for the first time is that you have to have a strategy and plan ahead. Those who stumbled into the BTL market in the early 2000s made a lot of money without any strategy or tactics.

 

Moving forward you need the guidance and support of an agent who can tell you the best places for investment, be that for better yield or better capital growth.

 

They will also be able to tell you what tenants demand to ensure that you attract the right sort of tenants who won’t trash the place and leave you in arrears.