The private rental sector has more than doubled in the 18 years since the introduction of buy to let mortgages, according to a report released by mortgage lender Paragon.
Private rentals account for 18% of all homes occupied, up from 10% in 2001. This year the private sector overtook the social rented sector for the first time since the 1960s becoming the second largest housing tenure type after owner occupiers, which comprises 65% of all housing.
The total number of private rental properties have increased from 2.4 million in 1996 to 4.9 million in 2014. Despite this increase, the private market appears to still be growing with 59% of letting agents believed that tenant demand “significantly exceeded the supply of available rental property.”
Who are the landlords and their tenants?
There are 2 million landlords in the UK, most of them (89%) are private individuals. There was a 49% increase in new landlords in the five years following the introduction of buy to let mortgages in 1996.
The average UK landlord is 56 years old, owns eight rental properties, has been a landlord for 14 years and aims to retain their investment for 19 years.
When it comes to their tenants, 36% are aged 25-34 dropping down to 22% that are aged 35-44. Most tenants are one-person households or couples, though the percentage of lone parent and ‘other’ multi-person homes have both more than doubled in the last 18 years.
What are buy to let mortgages?
Buy to let mortgages are mortgage loans designed for landlords introduced in 1996. They are different from residential mortgages as they are not protected by the same regulations to avoid foreclosures.
They are considered riskier by lenders and as such interest rates and deposits are normally higher, with rental income is taken into account to decide affordability.
They are typically operated a with interest-only payments, so with a buy-to-let mortgage a landlord will typically sell the property to repay the mortgage at the end of the term.
Are they a good thing?
Paragon state that the buy to let mortgage market has been beneficial: “It has allowed more private landlords to enter the market and it has encouraged competition, which in turn has increased the level of quality across homes in the sector,” they say.
By allowing the lender to take rental income into account – the rent from the tenant should cover the interest payments on the mortgage – buy to let mortgages should make buying easier for those who can afford a deposit.
Many landlords make a profit, especially considering mortgage costs have been falling and interest rates have been at historic lows since 2009, but UK-wide rents have increased around 9% since 2005, according to the Office of National Statistics.
Earlier this year Labour Leader, Ed Milliband, proposed to reform the rental market with caps for rent increases and contracts that can only be ended if the tenant breaches contract, not to raise rent.
Paragon point that private landlords are providing a solution to wider UK housing problem: “Poor housing supply means that whilst home ownership remains a first choice for many, it may simply not be affordable…Buy-to-let has helped to make sure that the private sector can fill the gap.”
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