Buy-to-let mortgages and the private rented sector
Last updated: 8 December 2016
At a glance
- Buy-to-let (BTL) mortgages are used to facilitate the purchase and remortgage of residential property in the UK for the purposes of letting to a tenant in the private rented sector.
- Prior to their launch in 1996, landlords were only offered loans on a similar basis to other lending to small businesses; which typically required larger deposits and charged higher rates of interest. BTL lenders began to offer mortgages on terms closer to a residential mortgage than a typical business loan; to reflect the relatively low risks of such lending.
- BTL mortgages are not usually regulated by the Financial Conduct Authority (FCA) as this type of lending falls outside of their jurisdiction, unless certain conditions are met which makes them a Regulated Mortgage Contract or a Consumer BTL mortgage.
- BTL mortgages are provided by a mix of both small and large lenders often operating their BTL businesses under a different brand name to their ‘high street’ brand.
- The Prudential Regulation Authority (PRA) published their underwriting standards for buy-to-let mortgages on 29 September 2016, following a period of consultation.
- On 16 November 2016, HM Treasury made the long-awaited announcement that it was granting the Bank of England’s Financial Policy Committee powers of direction in the buy-to-let market.
With 19% (4.3 million) of households in England renting privately in 2014-15 (English Housing Survey) - equivalent figures for Scotland, Wales and Northern Ireland are also available - BTL mortgages play a pivotal role in supporting housing supply in the private rented sector. (The figures for 2015-2016 will be released on 26 January 2017).
We want to see a market that works for all participants, including lenders, tenants and landlords.
We are supportive of initiatives which increase the quality and efficiency of properties in the sector and which aim to promote the professionalisation of private landlords, such as the London Rental Standard and other equivalent schemes operating elsewhere in the UK.
As many of our members operate nationally, it is important that the regulation of the private rented sector (housing is a devolved power) does not become too disparate. We would like to see, as much as possible, a consistent approach adopted throughout the whole of the UK.
We do not support initiatives to control the cost of renting, as we believe the only long-term solution to stabilise the cost of renting is to increase housing output.
Why this is important for lenders
The BTL mortgage market represents 14% of new UK lending.
The market has grown from 840,000 BTL mortgages outstanding with a total balance of £93.2bn at the end of 2006, to 1.8m BTL mortgages with an aggregate balance of £214bn by the end of 2015.