The story of the modern buy-to-let market begins with the passage of the Housing Act 1988, which substantially liberalised the private rented sector (PRS). The sector was previously heavily regulated with restrictions on rents and security of tenure, but with the Housing Act, came a new framework that gave landlords greater freedom over their properties and the conditions to allow the rental market to expand.
By the late 1980s, Britain was facing significant housing pressures against a backdrop of limited supply and stifling regulation. With the government unable to provide sufficient social housing to meet growing demand, the Housing Act would prompt a much greater role for the private sector.
The introduction of the buy-to-let mortgage
What really enabled buy-to-let to take off though, was the introduction of specialist buy-to-let mortgages in 1996. ARLA Propertymark, along with a small group of lenders, created a mortgage product specifically for buy-to-let landlords.
As the stock of social housing declined, the burgeoning private sector became a vital source of rented housing, providing additional capacity as the role of the state in housing provision changed. Over the following years, the private rental sector thrived in England, growing from around 2.1 million dwellings in 2001 to just under 5 million in 2024.
Buy-to-let finance helped transfer a substantial number of existing homes into the private rented sector, increasing the stock available to tenants and introducing a new class of investor to a housing market recovering from a downturn in the previous years. A larger pool of available properties increased choice for renters and intensified competition between landlords, while investment and regulation contributed to improving housing standards.
The benefits of the buy-to-let boom
Between 2006 and 2020, the proportion of homes classed as decent and available to rent increased from 53 per cent to nearly 77 per cent. Over the same period, housing standards also improved substantially with the help of better regulation of the rental market, electrical safety requirements, EPCs, and other measures.
A strong private rental sector also acted as a crucial stabilising pillar for the housing market following the global financial crisis in 2007 by facilitating the rise of the accidental landlord. Distressed homeowners now had an alternative to a forced sale. In 2010, 12.5 per cent of homes available to let had previously been listed on the sales market.
For homeowners facing financial distress or trapped in negative equity, refinancing onto a buy-to-let mortgage could offer the possibility of retaining a property and renting it out until market conditions improved, instead of being forced to sell at a loss or riskrepossession. This also enabled housing stock to be reallocated even when it couldn’t be sold.
The tide turns
Despite this, the economics of Buy-to-Let subsequently became more challenging. In the aftermath of the financial crisis, attitudes towards landlords grew sour while the 2015 announcement that income-tax relief on landlords’ finance costs would be restricted to the basic rate marked a significant change to the economics of being a landlord.
The restrictions were phased in from 2017, and fully implemented by the 2020/21 tax year. Subsequent increases to interest rates further increased financing costs for leveraged landlords, adding to the pressures on the sector.
The contraction in individual landlord investment did not result from one specific policy change. Instead, consistent changes to taxation, higher financing costs, and a growing regulatory burden have progressively altered the economics of owning a rental property to the point where small-portfolio landlords must often decide to exit the sector.
The result is already visible in the shrinking value of the private rented sector. Estimates suggest the value of the UK PRS fell by an estimated £48bn in 2025 alone, marking the third consecutive annual decline. Over the three years, its value fell by £79bn. The loss of rental stock has outweighed changes in the value of housing remaining in the PRS, highlighting the extent of the sector’s contraction as well as the scale of the task if this trend is to be reversed.
Where next?
The market now stands at a crossroads, with the risk that some of the conditions that the reforms of 40 years ago sought to reverse could begin to reappear. In particular, continued contraction in the supply of private rented homes could recreate the inadequate supply that was a feature of the housing market before the Housing Act took hold.
Buy-to-let investment is markedly less attractive now than it was at its peak, but the UK is not back in the 1980s just yet. However, if individual landlords continue to leave the sector faster than new investment enters, rental supply will become increasingly constrained. With demand remaining high, and even rising further, pressure on supply and the costs that come with this will be felt by tenants and landlords alike.
With more than five million private rented dwellings across Great Britain, the Government must consider what would happen if supply continues to contract at the pace it currently is. Could it realistically replace the homes provided by individual landlords? And how successful was the state in addressing the housing pressures of the 1980s? These are questions that need answering if we are to avoid repeating the mistakes of the past.
However, if we reverse course and stop pushing individual and small-portfolio landlords out of the market, a better future is possible. This means reconsidering the restrictions on finance-cost relief for individual landlords, and ensuring that tax treatment of rental income properly reflects the economics of owning and financing a rental property, as well as simplifying the regulatory regime that landlords currently face.
Then we would see investment return to the sector, house prices and transactions recover, rents fall, and tenants enjoy increased choice in the market alongside all the wider accompanying economic gains.
For Britain to hope again, we need a housing market that works again. That means restoring the confidence to invest.
Greg Tsuman is managing director for lettings at Martyn Gerrard Estate Agents.
