When John Heron created the buy-to-let mortgage, he never anticipated the financial revolution it would unleash.
The groundbreaking product transformed residential housing into an asset class the masses could invest in.
Thousands of prudent savers put money into bricks and mortar as a way to provide for their retirement, and the returns have looked after Britain’s pensioners since.
Heron developed the buy-to-let product in the unassuming role of mortgages managing director at Paragon Bank. “It wasn’t obvious that buy-to-let would take off in the way that it did,” he says.
Yet three decades after the product launched – on Sept 24, 1996 – new buy-to-let lending tops £40bn a year.
The anniversary serves as a reminder of the benefits the groundbreaking mortgage has brought to Britain’s economy and housing market.
James Tatch, of UK Finance, says being a landlord quickly stopped being a “niche” after the first mortgage was introduced. By 2008, almost all lenders had a buy-to-let mortgage product.
This was a win-win, according to Greg Tsuman, of letting agency Martyn Gerrard.
“The introduction of competitive market dynamics into the rental market benefited tenants. The influx of available properties translated into rental affordability and the standard of available homes substantially improved,” he explains.
But today, the economic legacy of buy-to-let is being undermined.
On May 1, 2026, Labour’s Renters’ Rights Act came into effect. The flagship legislation pulled the rug from under landlords, piling more red tape on a cohort who had already seen their profits whittled away by successive governments for decades.
As the dust settles on the new regime, data shows landlords have quit the lettings market at alarming rates.
Some 495 homes a day were lost in the third quarter of 2025, according to TwentyCi – a 196pc increase from the 167 lost at the start of the decade.
At the same time, rents are rising. Zoopla, the property portal, has predicted that annual cost rises in the private rented sector will hit 4pc or 5pc by the end of the year, a considerable jump from July’s 2.6pc increase.
Buy-to-let laid the foundations of Britain’s modern-day housing market – and experts are warning that policymakers must tread carefully to avoid dismantling it.
The need for private renting
Towards the end of the 20th century, Britain’s housing market was undergoing rapid change. Soaring inflation, interest rates as high as 15pc and the events of Black Wednesday in 1992 drove a level of arrears and repossessions that had never been seen before and has not been seen since.
House prices fell by 19pc in three and a half years, estate agency Savills reported. The market was thrown into disarray.
“This took the shine off home ownership for a generation and increased the need for private renting,” says Heron.
Despite the house-price slump, landlords struggled to expand their portfolios, or even enter the market, because there were no lending products designed for the purpose.
In response, Heron, the team at Paragon, along with the Association of Residential Letting Agents, created the first buy-to-let mortgage.
Crucially, affordability assessments and valuations had to change from the established residential mortgage standards.
“It was all new,” Heron says. “The added dimension we had to bring to valuations for the buy-to-let market was all about rental suitability. Will the property let? Is there good demand for it? Above all, what rent is it likely to generate?”
It took a year to create a product that could be put out to the market.
Most buy-to-let mortgages are interest-only. The amount you can borrow is based on rental income, and some lenders have a condition that you must already own your own home.
Suddenly, the world of property investing opened up to swathes of people who never would have considered it otherwise.
In 1996, there were just under two million privately rented households in England. By 2024-25, this had more than doubled to 4.7 million households, Paragon Bank reported.
“We were very pleasantly surprised by the interest that it rapidly generated,” Heron says.
£45bn boost to the economy
The buy-to-let sector provides more than just homes. Landlords support some 390,000 jobs each year, linked to the management, maintenance and improvement of rented homes, as well as surveyors, letting agents and property managers.
Small and medium-sized landlords contribute £45bn to the economy each year, according to research by Paragon and the National Residential Landlords Association.
Louisa Sedgwick, of Paragon, says that landlords also contribute significantly to the public finances through taxes on property purchases, rental income and capital gains. “Their contribution extends well beyond housing provision,” she says.
Buy-to-let has also propped up Britain’s retirement market as people have bought rental properties to bolster their pension pots.
Indeed, the returns from bricks and mortar have outpaced other investments. According to estate agency Hamptons, £10,000 invested in buy-to-let in 1996 will have generated £223,000 in total returns by 2026 – nearly triple the FTSE 100, which has generated £89,600, and gold, which has made £73,600.
Susan Goymour is one of thousands of retirees who have benefited from the property investment boom that buy-to-let ushered in.
She describes herself as a “run-of-the-mill person” who is certainly “not an entrepreneur”. Yet nearly 30 years ago, she made three six-figure investments in property.
Susan Goymour bought three property investments 30 years ago, which have provided a welcome boost to her pensions in retirement
“A friend had told me it’s the way to go. You keep your money because it’s in the property, which will increase in value; you get an income; and you’re giving someone a home.”
The move changed her life, boosting her retirement funds, paying for holidays and covering unexpected bills.
“The [state] pension and my private pension from British Airways probably wouldn’t be enough to give me a comfortable life and the environment was very conducive to buying property,” says Goymour, who lives in Henley-on-Thames.
She let out a property near Bradford and it “all went very well. The tenants enjoyed living there, and I enjoyed the income. It wasn’t a massive amount, but it was enough for me”.
So much so that when she took an early retirement from British Airways, she used her severance package to buy another house in the same area. She enjoyed giving families well-maintained homes.
Now, at the age of 70, Goymour has a comfortable retirement, reaping the benefits of her investments.
Demand for rentals
For others, property has been a lifelong career.
During the past 40 years, James Wright has built a rental empire.
He had worked as a hotelier for years, but under strict instructions from his then-fiancée, he left behind the hectic, late-night hospitality industry. So, in the 1980s, Wright turned to buying houses.
It was 13 years before the first buy-to-let mortgage would become available, and the sector was very different.
“You were given either a commercial or residential mortgage,” says Wright, now aged 74. “Bank managers turned a blind eye if you had an endowment.”
He bought properties one by one, but to start with he had “insufficient capital to buy more meaningful properties with good rents”.
The work was “no picnic”, Wright says, and he poured hours into stripping wallpaper and making homes presentable.
When specialised products finally landed, “there wasn’t a lender I didn’t have a mortgage with,” he recalls. It allowed him to professionalise his business.
By 2000 he had 100 rental properties, primarily in North London. He believes he was Paragon Bank’s largest landlord at one point in the Nineties.
The buy-to-let and subsequently build-to-let industries have been extremely fruitful for Wright. His company (he incorporated in 2015 because of George Osborne’s tax changes) has a turnover of £4m a year.
Over the years he has diversified his property portfolio considerably, buying hospitals and libraries.
Economic benefits aside, the importance of landlords in the housing market cannot be overstated.
Letting agent Tsuman says: “The buy-to-let mortgage solved the shortage of rental properties while bringing in the capital to return the market to growth. This in turn supported the country’s wider economic growth.”
Demand for rental accommodation increased during the 2000s as more people needed access to flexible housing.
Tony Blair’s policy for 50pc of young people to enter higher education led to more school leavers going to university.
More countries joined the EU in 2004, meaning more people migrated to study or work.
Both of these events stimulated the need for more rentals. “The [private renting] sector’s function is to provide liquidity and choice in housing that isn’t easily available from the other sectors,” Heron says.
But now, both Wright and Goymour are worried about the direction of travel for the buy-to-let sector, and Wright warns the Government against further tax and red tape.
The private rental sector at a crossroads
A series of reforms has changed the game for landlords.
“The wide-ranging benefits brought by buy-to-let would not be enjoyed unimpeded indefinitely,” Tsuman says. “In the years after the 2008 financial crisis, anti-landlord sentiment grew.”
Then came a stamp duty surcharge on additional properties, the removal of mortgage interest tax relief and, most recently, the Renters’ Rights Act.
Tsuman adds: “Today, the private rental sector stands at a crossroads. In many ways, history is repeating itself, with the market having a number of parallels with the market in the 1980s prior to the Housing Act in 1988.
“The country is once again in the grip of a housing market constrained by onerous taxes, over-regulation and wider economic disruption.”
In 2024-25, 1.92 million unincorporated landlords claimed repair and maintenance costs against their rental income, according to HMRC.
Letting agents Hello Neighbour calculated that this came to more than £3,000 a year per landlord.
Phil Shelley, of the letting agency, says: “Most landlords are ordinary people who own one or two properties. Together they house a fifth of the country, absorb billions of pounds in repair costs, carry the financial risk of ownership and provide flexibility.
“They do it well enough that their tenants report higher satisfaction than those renting from councils or housing associations.”
Yet landlords are being pushed out of the sector, putting upward pressure on rents.
Tsuman says: “Landlords were forced to pass these additional costs on to tenants to stay afloat. This in turn created resentment as renters incorrectly believed landlords were profiteering.”
Despite all that has been thrown at them, landlords remain resilient.
UK Finance’s Tatch says: “Buy-to-let remains an attractive prospect and the mortgages are extremely mainstream products.”
The need for rental stock is perhaps even greater than it was 30 years ago. Increasing numbers of pensioners are renting well into retirement, while many Gen Z workers are having to spend years in rental properties saving for a deposit before being able to get a toe on the housing ladder.
And there is still money to be made. More entrepreneurial millennials than ever are entering the buy-to-let sector.
In January, Hamptons found that people born between 1981 and 1996 now account for half of all new shareholders in buy-to-let companies in England and Wales.
Like it or loathe it, Britain is a nation of landlords – and the legacy of buy-to-let will be hard to erase.
A Ministry of Housing, Communities and Local Government spokesman said: “The private rented sector has doubled in size since the early 2000s, has remained broadly stable since 2013-14, and there is no evidence of an exodus since our reforms were announced.
“Our landmark Renters’ Rights Act gives tenants greater security.”
