Buy To Let Mortgages

Buy to Let Mortgages – An Introduction

Buy to let is one of the biggest mortgage markets in the UK; it is also one of the fastest growing areas of investment. This has resulted in buy to let gaining considerable attention from both novice and experienced investors alike. The theory of buy to let is very simple: individuals purchase property that they then let out to tenants, either on a long-term or a short-term basis that will, at the very least, cover the mortgage payments and hopefully will generate a regular income.

What are the Origins of Buy to Let
Buy to let has a somewhat curious background. The actual term, ‘buy to let’ originated in 1995 and was coined by the Association of Residential Letting Agents. This type of lending, however, had been in existence since the early 1980s, meaning that there were plenty of people in the buy to let mortgage market, before its existence was even recognised!

How Popular is Buy to Let, Currently
Driven by the rising concern over the state of pensions in the current decade, the buy to let market became one of the fundamental driving forces in Britain’s economy. In the first half of 2006, mortgage lenders granted a whopping 152,500 new buy to let mortgages, a rise of 17 percent on the previous six months. At that time, the average buy to let investor now had 8.3 properties in their portfolio, up 1.1 on the previous year. However, since 2007, the effects of the credit crunch have had a major influence on the buy to let market.

The collapse of property prices and financial institutions tightening their lending criteria has reduced investors’ options in relation to the buy to let market.


What was Driving the Buy to Let Mortgage Market
Demographics across Britain are changing and this is largely responsible for the huge demand for buy to let property. The average age of a first time buyer in Britain is now 34, up from 29 in 1974. Consequently, the pool of potential tenants has increased dramatically, thus further fuelling the demand for good quality rental accommodation.

Add to this the greater numbers of individuals who are now attending university. This has resulted in the student rental market rising dramatically, opening up a much greater opportunity for more rental properties in good central locations.

Demographic changes such as more single adult households and higher divorce rates will mean that the demand for rental properties is likely to continue to rise, for at least the immediate future.

However, the credit crunch has caused many lenders to abandon buy to let mortgages and the rest to become far more choosy about who they’ll lend to and how much they’re prepared to lend. Add to this a falling property market and an oversupply of some types of property, particularly flats, and it is clear to see why the buy to let market is relatively quiet at present.

Summary
Buy to let mortgages have been around in essence for several decades; and
the term ‘buy to let’ has been in existence since 1995 and since then, the market has sky-rocketed reaching a value of nearly £84 billion, across the UK.
the credit crunch has had a significant negative effect on the buy to let market.