The buy-to-let scheme was designed to address the problems we looked at earlier. The original lenders were now prepared to:
- Consider lending on residential investment property as a mainstream activity – the risks involved in a loan going bad were now reduced because vacant possession could be guaranteed under the provisions of the Housing Act. This meant the property could be sold at its full value if it had to be repossessed;
- Take the rental income into account – this meant that people in average or even low paid jobs could now potentially qualify as borrowers;
- Increase the LTV ratios. The early schemes were typically around 70-80%, meaning that a potential investor now had to find a smaller deposit from their own funds to get a foot on the property investment ladder; and
- Charge interest at rates nearer to normal residential mortgage rates, rather than commercial rates. That meant that investors were more easily able to finance purchases by way of the existing or anticipated rental income, without having to subsidise their investments from other sources.