Mature couple standing in front of house

Britain’s buy-to-let market has seen a tremendous development since the 80’s, causing a complete transformation in home ownership.

Public residential housing, referred to as ‘council housing’ by the local government in the United Kingdom, was a policy implemented from the 1920’s and onward to house families in rented accommodations. World War 2 bombings and a slum clearance policy created a demand for affordable housing with limited supply. The Land Acquisitions Act in 1946, gave the right to local authorities to develop land, giving way for the rise of council houses with a queuing mechanism and with priority to families with low income or special conditions. Relatively low rents gave incentive to the tenants to never leave the council houses, even if their monetary conditions were to improve. With high maintenance costs on the government due to cheap construction, the local government was required to take immediate action to keep the economy afloat.

The buy-to-let market kicked-off with the Right to Buy (RTB), a movement introduced by the Conservative Party and lead by Margaret Thatcher, the Iron Lady and former British Prime Minister, in 1979. The Right to Buy law was implemented in October 3rd of 1980 to all residential properties where the landlord was a council, new town, or any other public sector and included the following:

  • 33% discount for tenants who had resided in their home for up to three years.
  • 50% discount for tenants who had resided in their home for up to 20 years.
  • Available and guaranteed mortgages by the local authorities.
  • £100 deposit to hold the sale for 2 years.

New housing policy gave advantage to ex-council tenants who could now afford the properties they lived in and tax payers, who thrived in a time of housing and economic boom.

The optimism of the market and increased consumer spending led to the UK recession in the early 1990s and in return a shortage of housing supply. Residential property prices dropped significantly and a large sector of the public could no longer pay their mortgages. However, in 2008, the market took a sudden demographic shift and over one million buy-to-let properties were purchased alone in that one year. Investors were seeing the rise of the private rental sector and were transforming the buy-to-let market into the strongest asset class.

In 2015, the Conservative Party committed to extend the Right to Buy and stated:

‘We will extend the Right to Buy to tenants in Housing Associations to enable more people to buy a home of their own. It is unfair that they should miss out on a right enjoyed by tenants in local authority homes. We will fund the replacement of properties sold under the extended Right to Buy by requiring local authorities to manage their housing assets more efficiently, with the most expensive properties sold off and replaced as they fall vacant’. (Conservative Home-https://www.conservativehome.com/thetorydiary/2018/04/the-conservatives-must-press-on-with-giving-housing-association-tenants-the-right-to-buy.html, 2015)

The private rental sector continues to dominate public housing with extremely low mortgage rates and an average gross yield of 5.3%. The asset class continues to stand strong and grow despite of all the challenges it has been throughout time and proves to be a profitable investment with financial security.

 

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