The ‘Buy-To-Let’
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’ (BTL) mortgages has changed the face of the Doncaster
(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.
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 Doncaster private rented sector
has grown exponentially.
According to my
analysis…
there
are 13,529 private rented homes in Doncaster, worth
£4,256,264,000.
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.
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.
Doncaster house
prices dropped by 9.3%
between 1989 and 1993.
This meant as we
entered the mid 1990s, the Doncaster property market entered a period of
stagnation. There were many Doncaster 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 Doncaster
landlords are very fair with their Doncaster 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.
The
UK population has grown by 405,000 people per year (for the last 20 years), yet
only 22,750 council/social houses have been built per year in the same time
frame.
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?
Also
there has been a drive to tax BTL landlords more comprehensively and regulate
the private rented sector to develop better housing conditions for
tenants.
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.
Doncaster landlords
have also had to pay more tax on their Doncaster 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.
Interestingly
landlords that don’t use a letting agent to manage their property are 272.5%
more likely to be 2 months or more in 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…
726
Doncaster private rented households with
a court order for arrears.
The idea that
Doncaster landlords are middle-class establishment types who are out to take
advantage of Doncaster tenants who can’t afford to buy their own Doncaster
homes is, in my opinion, just wrong.
Of course, there are
some rogue Doncaster landlords, yet there are plenty of rogue tenants. Just
because you are a Doncaster landlord, it doesn’t mean you are quaffing
champagne and rolling in cash.
2,430
Doncaster landlords own just one BTL
property.
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.
It’s
hard work being a Doncaster BTL
landlord and I still believe the burden of housing just under a fifth of the UK
population isn’t appreciated or taken seriously by Government.
Notwithstanding the
challenges, most Doncaster 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 Doncaster 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.
I know the Stamp
Duty tax holiday has cleared out the Doncaster landlords who were on the fence
for staying in the private rented sector or selling up, but those Doncaster
landlords that are left will be more professional and will run their BTL
portfolio as a business, not a hobby.
My final piece of
advice to anyone thinking of becoming a BTL landlord in Doncaster 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. If you would
like some advice, do not hesitate to drop me a line or pick up the phone.