Is Buy-to-Let Still a Good Investment?
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What sparked the creation of the first buy‑to‑let mortgage in 1996?
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Welcome to Merrin Talks Your Money, the personal finance edition of Merin Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merrin Sumset Webb, Editor at Large for UK Money.
Now this month is important. Well, important for those of you invested in property anyway. It marks the 30th anniversary of the creation of the Buy to Let Mortgage, a new type of home loan that triggered an explosion of rental activity in the UK when it launched. But thanks to regulation and tax changes, I mean a lot of regulation and tax changes, being a landlord isn't quite as appealing as it once was. Well, that's my view anyway. Other people may have different views. So this week we're going to talk about how buy-to-let mortgages reshape the face of property investment in the UK and whether it has a future of any kind. Joining me today is the head of research at Hampson International, Anisha Beveridge, Hampton.
Sister's put out a report on 30 years of buy to let. Anisha, welcome to Meren Talks Money. Thanks for having me, Marin. Right, it's been quite a ride by Dillette, hasn't it? Can we have a little potted history? What is it that happened back in September nineteen ninety six?
Well, I think it was nineteen ninety-six when the first kind of buy-to-let mortgage launched that really kind of kick-started the growth in the rental sector and has really built the foundations of what we see in that market today. Before that time, landlords or anyone that wanted to buy rental properties had to either buy that property outright with cash or they had to kind of rely on commercial loans, which tended to be pretty expensive and Terms of interest rates were only available on kind of 10-year maximum terms. So it wasn't the most kind of costly way of approaching an investment. Mm. But the use of kind of a buy-to-left mortgage, using leverage, and importantly, banks started using rental income as a way of assessing affordability.
How did leverage and interest‑only loans make buy‑to‑let attractive in the early years?
And that really opened the doors to a bigger kind of group of investors.
Yeah. And you could also get interest only mortgages, couldn't you, in the buy to let business even then? Yeah. So you could put down a small deposit, uh, huge leverage, and then rely on paying an interest only mortgage off from the yield, and then assuming that inflation would mean that the remaining mortgage was worthless or negligible thirty years after that.
Yeah. And of course I think it was interesting actually because back then when we look at some of the numbers, the majority of the buy to let uh mortgages that were taken out in the late late nineties were actually repayment mortgages, not always only. But of course, it was an era of very rapid house price growth. And we were seeing sort of twenty, thirty percent year on year growth in times in the late nineties and all of a sudden house prices doubled within a kind of six year window and it just built in the ability for people to use that equity and kind of build portfolios from then on. Mm mm.
So The way you say that suggests that over time, the majority of the return to investors and buy to let has been from capital gains. But looking at the report, that's not what you say at all. You say something completely different that the majority of the long term return has been from rental income.
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Chapters
8 chapters
1
What sparked the creation of the first buy‑to‑let mortgage in 1996?
0:00–3:02
2
How did leverage and interest‑only loans make buy‑to‑let attractive in the early years?
3:02–5:30
3
What proportion of total returns came from rental income versus capital gains over the 30‑year period?
5:30–8:06
4
How did tax changes and the 3 % stamp‑duty surcharge affect landlord profitability?
8:06–11:08
5
Why are many landlords now moving their properties into limited‑company structures?
11:08–13:30
6
Which UK regions currently offer the highest yields for new buy‑to‑let purchases?
13:30–16:53
7
What new regulations and insurance products should modern landlords be aware of?
16:53–19:07
8
What practical tips does the expert give for anyone considering a buy‑to‑let investment today?
19:07–20:57
Speakers
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