Commercial Mortgage Rates for Buy to Let Property

The concept of buying property as an investment is relatively recent in the UK. Before the 1990s, the residential and commercial rental markets were predominantly controlled by government bodies. It wasn’t until the 1980s that the government shifted its stance, laying the foundation for today’s private rental sector and, subsequently, the rise of buy-to-let mortgages.

During the post-war era (1945–1980), the UK government was responsible for providing housing. Large-scale council housing projects were launched, and accommodation was provided at subsidised rents. Rent controls were stringent, and tax incentives heavily favoured owner-occupiers. As a result, the idea of individuals owning multiple homes to generate rental income was virtually unheard of.

Fast forward to the modern day, and the landscape has changed dramatically. Today, the government builds very few residential homes. Instead, property development is driven by private construction firms and small-scale builders. This transformation is central to understanding the explosion of the buy-to-let market in recent decades.

From Right-to-Buy to Buy-to-Let

The buy-to-let journey began with Margaret Thatcher’s government, which introduced the “Right-to-Buy” scheme in the 1980s. Council tenants were allowed to purchase their homes at discounted prices, prompting a shift in property ownership.

Simultaneously, demand for private rented accommodation grew. With fewer council homes and increasing population pressures—including rising student numbers, immigration, and delayed first-time buyers—more individuals turned to private landlords.

The Introduction of Buy-to-Let Mortgages

The breakthrough moment came in 1996 when the Association of Rental Letting Agents (ARLA) partnered with a small group of lenders to launch the first wave of specialist buy-to-let mortgages.

These loans allowed individuals to purchase investment properties with borrowing terms explicitly tailored to rental yields rather than just income multiples. One critical legislative change that facilitated this was the Housing Act 1988, which presented the Assured Shorthold Tenancy (AST). This gave landlords legal rights to regain possession of their property under certain conditions.

Why the Buy-to-Let Model Flourished:

• Introduction of ASTs protecting landlord rights
• Rising house prices, encouraging capital growth
• Equity release opportunities, enabling portfolio expansion
• High rental yields, especially in student and urban areas
• Shift in societal behaviour, such as later marriages and increased mobility

The Market’s Golden Era: 1996–2008

From the late 1990s to the global financial crisis of 2008, buy-to-let properties delivered exceptional returns. Investors who bought early saw both capital appreciation and strong rental yields.

Many landlords utilised the increasing property values to refinance and extract equity. This capital was often reinvested into additional properties, expanding portfolios and contributing to further housing demand.

Buy-to-let became one of the most popular investment vehicles, outperforming traditional asset classes like stocks and bonds for extended periods.

Buy-to-Let Growth Post-Financial Crisis

Following the 2008 crash, the property market faltered temporarily. However, low interest rates, quantitative easing, and growing demand in the private rental sector ensured a relatively swift recovery.

By 2015–2016, the buy-to-let mortgage market had grown to nearly £40 billion, covering approximately 2.7 million properties across the UK. This resurgence underlined the strong resilience and ongoing appeal of property investment.

The Tipping Point: 2017 to 2018

Despite past success, several regulatory changes began to reshape the landscape. In 2017, a raft of policy changes introduced by the UK government started to impact landlords:

• Reduction of mortgage interest tax relief, phased from 2017 to 2020
• Stamp duty taxation of 3% on second homes
• Tougher affordability assessments from mortgage lenders

According to the Council of Mortgage Lenders, the buy-to-let market was predicted to contract to £30 billion by 2018. Traditional residential landlords’ appetites began to wane due to reduced profitability.

Key Challenges Faced by Landlords:

• Difficulty in passing stricter mortgage stress tests
• Reduced net returns due to changes in tax policy
• Growing compliance requirements (e.g., EPCs, licensing, and safety regulations)

Commercial Buy-to-Let: A Safer Harbour?

While residential buy-to-let faced increasing headwinds, the commercial property sector remained relatively resilient. Investors began shifting towards commercial assets, driven by higher rental yields and fewer regulatory burdens.

Commercial mortgages typically require the following:

• Higher deposits (often 25%–40%)
• Longer tenancy agreements
• Higher rental yields (often 6%–10%)

This segment includes offices, retail units, industrial spaces, and mixed-use developments.

Trends Influencing the Commercial Mortgage Market

• E-commerce boosting demand for warehousing and logistics hubs
• Changing work patterns affecting office space requirements
• Urban regeneration projects increase the value of commercial premises

The Future of Buy-to-Let Investment

The buy-to-let sector is unlikely to return to its pre-2008 highs. However, there will always be demand for rental accommodation in the UK. The key lies in adapting to the new rules of the game:

Strategic Responses by Investors:

• Diversifying into HMOs (Houses in Numerous Occupations) for higher yields
• Investing in property management services to stay compliant
• Transitioning to corporate structures to mitigate tax penalties
• Focusing on commercial property with better ROI

About The Property Buyers

At The Property Buyers, we specialise in helping UK investors, landlords, and overseas property owners navigate the complex world of property investment. With decades of experience in residential and commercial markets, we aim to simplify real estate transactions and deliver strong returns. Whether you want to expand your buy-to-let portfolio, refinance your commercial property, or sell your investment, our expert team supports you.

What Landlords and Investors Should Know

• The buy-to-let market transformed rapidly from the 1980s onwards
• Government incentives and new mortgage products spurred mass investment
• Policy changes post-2017 created new challenges for residential landlords
• Commercial property offers better stability and yield in today’s market

Key Takeaways:

• Always stay informed of regulatory changes
• Consider diversification into commercial property or HMOs
• Evaluate mortgage products based on long-term affordability
• Work with experienced property consultants to optimise your investments

To explore commercial mortgage rates for buy-to-let properties or discover the latest property deals, contact us today through our dedicated service page.