Over the last ten years, buy-to-let has taken the UK property market by storm. It now represents approximately 10% of the UK residential housing market having grown from virtually nothing since 1997. By the end of 2006, there were 850,000 buy-to-let mortgages outstanding, worth £94.8 billion, from only 28,700 less than ten years ago, representing nearly a 30 fold increase*. As a whole the UK property market has had an unprecedented boom over the last decade with property prices in most areas of the UK increasing by 200%.
Low interest rates have played a key role in boosting the market to its current highs. Interest rates were 6% in 1997, having fallen from a high of 15% in 1989 and over the course of Blair’s premiership fell to a record low of 3.5% in 2003. This improved affordability and encouraged homeowners and investors to spend more and lenders to offer larger loans.
The buy-to-let market was further aided by the removal of restrictions to the Assured Shorthold Tenancy agreement (AST) in the early days of the Labour administration. Making lettings easier and signalling to the market that the Government was not going to bring back the rent controls abandoned by the Tories.
However, the UK still has one of the smallest private rented sectors amongst the world’s industrialised nations, with the US having 32% of the residential market in rented housing and Germany a staggering 48%.
Gavin Davidson, Property Director of ThePropertyInvestmentMarket.com, the online property exchange, said: “The changes to the AST and better borrowing rates offered the reassurance needed to encourage buy-to-let investors into the market and has encouraged investment in residential property through a variety of means. As a whole, investing in property has become much more prominent during the last decade as ordinary people want their slice of the action. Perversely Thatcher went out of her way to create a home owning democracy, Blair by contrast has heralded the return of the private landlord, at least for the least well off in British society”
The Government’s open policy on immigration has created additional demand for rental property. As prices have risen affordability has become a problem especially amongst first time buyers, further contributing to the need for rental properties and bolstering the buy-to-let market.
“Looking forward to Mr Brown’s leadership, he will be faced with the problem of how to keep the property market healthy. At the same time he needs to find a way of closing the gap between those with property and those without.
“Labour is caught in a dilemma – they talk about making houses more affordable but to achieve this property prices would have to fall. Blair was keen to try and please all of the people all of the time, but the Government knows that most of the electorate are home owners and there is nothing that makes homeowners feel happier than continuously rising house prices,” continued Mr Davidson.
