Buy To Let Mortgages
Buy to Let Mortgages | The Facts About Rental Property Finance
Buy to let mortgages came about because of a number of circumstances that led to a boom in the rental sector. Although people had previously bought properties and rented them out, buy to let was not seen as a special sector. The financial picture for BTL was very different until the late 1980s. Tenants had security, which meant it was very difficult to evict them. This meant that getting mortgages and entering the rental sector was not an attractive proposition for many landlords, particularly those who were not professionals.
The first event that changed the picture for buy to let mortgages was the 1988 Housing Act. This abolished security of tenure for tenants. In other words, it was now easier for landlords to evict them. This made the Buy to Let sector much more attractive to potential landlords.
The second event that would eventually lead to the buy to let mortgage becoming more popular was the recession and housing market crash. At the height of the 1980s economic and property boom, people were buying properties and the rental market was quite depressed. But this trend reversed during 1989 to 1994, with economic recession and a decline in the property market, with a large number of repossessions. Both of these had a positive effect on the rental sector, paving the way for increased interest in the buy to let mortgage.
The purchase, refurbishment and rental of properties was not new but it was not until the mid 1990s that it was given a formal name by the Association of Residential Letting Agents (ARLA), the industry body for the rental sector. ARLA proposed a change to the way buy to let mortgages were offered. In the past buy to let mortgages were offered at commercial rates, making that type of investment very expensive. In addition, buy to let mortgages did not take rental income into account. ARLA's scheme for buy to let mortgages was to change all that.
Buy to Let Mortgage Proposal
ARLA proposed that buy to let mortgage rates should be offered that were more in line with owner occupier mortgage rates. Buy to let lenders, it argued, should also take rental income into account when deciding whether a particular Buy to Let mortgage represented a good investment for both the lender and the potential landlord.
ARLA had a panel of six lenders who were prepared to offer buy to let mortgages under those terms, and the first buy to let mortgage deals were offered in 1995. Since then, many more lenders have begun to offer mortgage terms and interest rates for buy to let and the rates are getting closer to those offered for residential mortgages.
In order to offer more favourable terms on a buy to let mortgage, most lenders look to minimise their risk and one way to do this is to stipulate that landlords, especially new landlords, use ARLA members as letting agents. This means they can be sure that the property will be professionally managed and their buy to let investment will be protected. This has enabled many mortgage lenders to reduce the amount of rental cover on buy to let mortgages.
