14
The rise of the private rented sector
The importance of the private rented sector to UK housing policy has never - at least in the post-
war period - been so high, with increasing policy expectations that the sector will take the strain
from constraints in other parts of the housing market (DCLG, 2011a; Whitehead et al., 2012). A
combination of factors, including limitations on first time buyers obtaining mortgages and persistent
problems of affordability of homeownership in many locations, combined with access constraints
to social housing has increased demand in the privately rented sector. Indeed, there has been a
significant restructuring in UK housing tenure over the last two decades. Private renting more than
doubled in size between 1991 and 2011, growing from just over two million dwellings (nine per
cent of the UK stock) to 4.7 million dwellings (17 per cent of the stock). Over the same period, the
owner occupied stock has dropped slightly from 67 per cent of the UK stock to 65 per cent (peaking
at 69 per cent for much of the 2000s); and social rented housing has dropped from 25 per cent to
18 per cent of the UK stock during the same period (CLG Live Table 101).
The origins of buy-to-let mortgage provision in the mid-1990s are well rehearsed, reflecting the poor
external housing market conditions of the 1990s downturn and the under-performance of alternative
asset classes. It was a market response that permitted landlords ready access to mortgage finance
(Crook et al., 2012; Gibb and Nygaard, 2005; CML, 2001; Rhodes and Bevan, 2003). Buy-to-let
therefore underpinned the expansion of private renting. Arguably buy-to-let also met increased
rental demand to which it had itself contributed, as affordability pressures prevented some first time
buyers accessing homeownership and regulatory imbalances gave landlord investors competitive
advantages (Wilcox, 2013; FSA, 2012).
Accompanying the growth in private renting, buy-to-let lending has become an increasingly
important part of the mortgage market, with the number of loans increasing from approximately
73,000 buy-to-let loans outstanding in 1999 to 1.5 million by 2013 (CML Table AP5). The market
share occupied by buy-to-let loans increased from 0.7 per cent in 1999 to 13 per cent by Q3-2013
(CML Table AP7). The value of lending in this sector grew from £3.9 million in 2000 to £15.7 million
by 2012, although this remains at approximately a third of the size of the market at the height
of the market boom in 2007 when £45 billion was advanced (CML Table MM17). The growth in
buy-to-let finance has meant that in 2010 more than one half of private rented dwellings had been
obtained with a mortgage (56 per cent), a proportion that was highest amongst private individuals
(64 per cent), who account for 89 per cent of private landlords within England (DCLG, 2011b). The
importance of mortgage finance to this part of the housing market reinforces the significance of
understanding the threats to these loans.
The rise in buy-to-let lending reflects the growing confidence among landlords who see many
aspects of the sector improving, although not uniformly (BDRC, 2013). However, the expansion of
the sector runs in parallel to greater demands for reform, to increase the professionalism of what
has regularly been described as a ‘cottage industry’ (Rugg and Rhodes, 2008). Both Shelter and
the Building and Social Housing Foundation have recently proposed that policy attention should
be focussed on measures that protect the interests of the increasing proportion of families living
in the sector (Shelter, 2011; Pearce, 2013). Advocates of ‘stable renting’ are seeking changes to
security of tenure, to promote longer tenancies, and some level of landlord registration or licensing.
The Department of Communities and Local Government has worked with industry representatives
and other stakeholders, to produce a model longer-term tenancy, provided tenants with the right to
request longer tenancies from landlords and proposed that letting agents belong to a redress scheme
(CLG, 2013). To reflect these new uses for the private rented sector and policy ambitions there is also
pressure on lenders to revise clauses in the buy-to-let mortgage terms that often limit the length of
tenancy that landlords can offer tenants to 12 months, or that specify categories of tenants to which
landlords cannot let properties. Two large lenders recently reversed previous policies of prohibiting
landlords from letting to tenants on housing benefit and shorter tenancies, but these risks in terms of
lending are poorly understood.