With the share of households living in rented accommodation increasing from 11% in 2004 to 21% today, the introduction of BTL mortgages has resulted in more demand for homes (from new landlords and traditional homeowners) and therefore rising property prices. These higher prices have meant that young workers are renting for longer because the amount they need to save for a deposit is increasing every year.
According to Knight Frank estimates, a quarter (5.8m) of households in the UK will be renting privately by the end of 2021. This will compare to 14.3m owner occupiers and 4.3m social tenants. The firm commissioned a YouGov survey of more than 10,000 tenants and spoke to 26 major investors. It found that the most common reason for renting was saving for a deposit to buy a property, cited by 30%; followed by 21% who said renting allowed them to live in an area where they could not afford to buy; and 18% who said renting was more affordable than paying a mortgage. Just 8% said they were renting because they did not want the responsibility of owning a home; 6% need the flexibility because of work; 6% are downsizing; another 6% cannot find an appropriate property to buy; and 5% do not want to be stuck in one location.
However, a recent UK Buy to Let Market report by Shawbrook Bank and the Centre for Economics & Business Research (Cebr), revealed just how much London has been at the centre of the BTL phenomenon that has gripped this country over the past 20 years. House prices in London have risen by more than 80% in the past seven years and the capital city accounts for almost one in four BTL loans (24%), compared to 13% of loans for owner occupiers.
The most common use for a BTL mortgage nationally is to purchase a flat (36%), closely followed by terraced houses (34%), according to the report.
Tax changes mean that some landlords may no longer be profitable
Shawbrook gives the following example to clearly show just how much of an impact the changes to tax relief of mortgage payments will have on a landlord once fully implemented: