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 BTL mortgages has changed the face of the Neath (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.
And 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 Neath private rented
sector has grown exponentially.
According
to my analysis …
there are 2,367 private rented homes in Neath ,worth £360,189,000.
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 1990’s.
It’s no wonder buy-to-let 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.
Neath house prices dropped by 9.6% between 1989 and 1993.
This meant
as we entered the mid 1990s, the Neath property market entered a period of
stagnation. There were many Neath 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
Neath landlords
are very fair with their Neath 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 private rented sector, who would’ve 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.
Neath
landlords have also had to pay more tax on their Neath BTL properties, paying
3% Land Transaction 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 rental 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 …
127 Neath private rented households with a court order for arrears.
The idea
that Neath landlords are middle-class establishment types who are out to take
advantage of Neath tenants who can’t
afford to buy their own Neath homes is, in my opinion, just wrong.
Of course,
there are some rogue Neath landlords, yet there are plenty of rogue tenants.
Just because you are a Neath landlord, it doesn’t mean you are quaffing Champagne and rolling in cash.
425 Neath 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 Neath 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 Neath 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 Neath 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 Land
Transaction Tax holiday has cleared out the Neath landlords who were on the
fence for staying in the private rented sector or selling up, but those Neath
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 Neath for the
first time is that you have to have a strategy and plan ahead. Those who
stumbled into the buy-to-let 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 speak to our award-winning sales & lettings team today!
