There were two major changes on the “road” to buy-to-let:
- A change to the landlord and tenant law
- A desire by ARLA to promote its member’s business
The first step towards buy-to-let as we now know it was that the law on landlord and tenant was changed to make letting easier and more financially attractive to private landlords.
Before the Housing Act 1988 tenants had very strict rights to “security of tenure” (rights to occupy a property). This made it difficult for a landlord to evict if the tenant misbehaved, went into rent arrears, or otherwise broke the terms of the tenancy. There were only restricted circumstances under which a landlord could take back possession of the property, and in any case this required a court hearing. Selling with vacant possession to release the full value of the property was rarely an option.
The amount of rent a landlord could charge was also limited, and despite being called a “Fair Rent”, was often well below the true open market rental value.
The Housing Act 1988 introduced The Assured Shorthold Tenancy. This is a much more flexible arrangement which allows landlords to:
- Take possession of a property on giving a suitable notice period, usually two months;
- Charge a full market rent
The second major change occurred was in the mid 1990’s. ARLA, the Association of Residential Letting Agents, www.arla.co.uk, decided to encourage the private residential letting market for the benefit of it’s members. It hoped this could be achieved by teaming-up with various mortgage lenders, who agreed to make loans easier to obtain by private investors. In return, ARLA members agreed to maintain the value of the investment, against which the loan was secured, by organising high quality, professional property management.
And so the Buy-to-Let Scheme as we know it was born.