Happy Birthday Buy To let
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Celebrating a Decade of Buy-to-Let Mortgages
Summary
This summer marks the tenth anniversary of the buy-to-let mortgage, a product first launched by Mortgage Express in July 1996. While this sector's growth has been noteworthy, it raises questions about its impact on first-time homebuyers.
A Decade of Growth
This summer celebrates ten years since the introduction of the buy-to-let mortgage, first trialed by Mortgage Express, a part of the Bradford & Bingley group. Since then, buy-to-let loans have captured around 20% of the market.
Evolution and Expansion
The evolution of buy-to-let mortgages began with new legislation in The Housing Act, empowering landlords to evict tenants failing to pay rent. In September 1996, the Association of Residential Letting Agents (ARLA) brought these loans to the market with help from a panel of lenders.
The perceived risk of buy-to-let declined as more lenders recognized its potential. Today, nearly 70 lenders offer these products, although the majority of loans are still managed by six key players: Paragon, GMAC, Mortgage Express, Birmingham Midshires, NatWest, and The Mortgage Business.
Risk Analysis and Market Demand
Comparative risk analysis shows that residential loans carry a higher risk than buy-to-let mortgages. According to the Council of Mortgage Lenders, 0.68% of buy-to-let mortgages were in arrears for over three months, compared to 0.97% of standard loans.
Rising house prices and a booming population have driven increased demand for rental properties. Both novice and seasoned landlords have gained confidence, expanding their portfolios significantly.
Market Growth and Loan Flexibility
Over the past decade, the buy-to-let sector has grown to encompass approximately 8% of the UK's housing stock. Initial mortgage deals were commercial and inflexible, featuring high interest rates and low loan-to-value ratios. Now, landlords typically benefit from an 85% loan-to-value ratio, with rental coverage averaging 125% of the mortgage payment.
Research shows 83% of landlords plan to expand or maintain their portfolios in the coming months. The average number of properties per landlord has risen from three in 1996 to seven today. Buy-to-let lending soared from £3.1 billion in 1999 to £24.5 billion in 2005, with the market currently valued at over £73 billion.
Challenges for First-Time Buyers
The growth of the buy-to-let market poses challenges for first-time buyers, who often compete for similar properties. Despite government support assurances, the expansion of buy-to-let could undermine first-time buyers' opportunities.
With property prices rising and rental yields diminishing, First Mortgage Trust has developed a buy-to-let rental calculator, simplifying the initial investment process.
Conclusion
As the buy-to-let sector continues to grow, its impact on the housing market will be keenly observed, particularly concerning first-time buyers. The evolution of this mortgage type reflects changing times and a shift in investment preferences toward real estate.
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