The rise and evolution of buy-to-let and green mortgages

By Andrew Ferguson, Managing Director, Buy-to-Let West One.

25 years on from the launch of the very first buy-to-let products and the private rental market is going from strength to strength.

Back in the 1980s and 1990s, the proportion of private rented households was steady at around 10%. By 2020 the number of households occupied by private renters had almost doubled to 19% standing at 4.44 million, according to

It is not hard to see why. While consecutive governments have tried to make it easier for people to get on the housing ladder, for many people this is something they neither want to do, or realistically will be able to do.

The demand for private rental has therefore soared and with it, rents have too. In the past twenty years, Statista reports that aggregate annual rental costs paid by tenants have increased on a yearly basis from £27 billion in 2000, to £86 billion in 2020. Add to this a trebling in the growth of house prices over this time period and it's easy to see why landlords want to invest.

Recent analysis by the Halifax reveals that the average price of a home has risen by an incredible 207% in the last twenty years. In Greater London, the rise has been even more step, up by 236% since the millennium. These are the types of returns that are rarely available on the stock exchange.

Perhaps unsurprisingly given that backdrop, IMLA predicts that the buy-to-let mortgage market is likely to exceed £40m this year with a similar forecast in 2022.

The advent of green products

Now the private rental sector is evolving again. Maybe it is fitting that this is happening on its 25th anniversary. There has been a huge launch of green buy-to-let mortgages this year.  This comes on the back of changes announced by the government they there needs to be a concerted effort to make the UK housing stock more environmentally friendly. 

As estimated 15% of all UK emissions come from our housing and the government wants that to change. Ahead of hosting world leaders at the Glasgow climate summit COP26 in November, our government declared that all rented houses need to reach an EPC rating of at least C by 2025. For existing tenancies the date is 2028. Currently, landlords need to achieve a rating of E, so a significant number of landlords are going to need to invest in their properties over the next couple of years to bring them up to the required standards, or else they risk not being able to let them out.

Lenders, such as West One, are playing their part in this by launching lower cost 'green' mortgages to reward landlords who have brought their properties up to the required standard. This is about making a positive impact where we can as a company - and encouraging landlords to do the same while also complying with the government legislation.

We all need to make the changes we can in order to have a positive impact on sustainability and carbon reduction, particularly with the housing market being a key contributor to UK CO2 emissions.

Brokers have an important role too, in making their landlord clients aware of the forthcoming legislation and that they can pay a lower interest rate when their properties de reach a C rating or above.

There is no time to lose in these upgrades either. While 2025 may feel like it is a long time in the future, upgrading properties is often not an overnight job. There are a lot of people choosing to improve their properties rather than move at the moment and there are many tales that it is taking up to a year to get a good quality builder. If a landlord waits a year or two before even starting to upgrade their properties, and it then takes a year to get a builder then they will be in danger of not completing any improvement works before the 2025 and 2028 deadlines.

We have yet to see how the government and various regulators will respond to landlords who have not achieved a  level C rating, but potential penalties must be a situation that most landlords want to avoid so there is no time to lose.

Michael Gove as the new housing minister may also shake things up. Not someone known to let grass grow under his feet it is highly likely that landlords will be faced with more regulation rather than less. There has been much furore over the past few years about 'rogue landlords' and poorly maintained properties; it is highly likely therefore that this will be a focus for our latest housing minister - along with the building of an extra 300,000 houses a year.

Improving environmental standards of properties as well as general living conditions is likely to be a given, so the sooner landlords start the better. The launch of green mortgages is a step in the right direction by lenders to help those landlords who do the right thing.

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