This summer marks the 10th anniversary of the buy-to-let mortgage, the loan that has made landlords of investment bankers, teachers and plumbers alike.

The buy-to-let market is now worth more than £73bn and is growing fast. Private rented property has grown into one of the most popular ways to generate income and build a nest-egg for the future.

Buy-to-let mortgages sprung up after new legislation gave landlords more power to evict tenants who were not keeping up with their rent. In September 1996, the Association of Residential Letting Agents (Arla) launched these loans via a panel of lenders, and changed the face of the UK property market. Bradford & Bingley Group, which runs Mortgage Express, was the first to trial a buy-to-let product in July 1996.

The arrival of buy-to-let mortgages transformed the market as until then the only way to borrow money in the private rented sector was through commercial loans, which were significantly more expensive and less flexible. Buy-to-let mortgages triggered a switch in the ownership of rented properties from equity or small businesses to private individuals, and the market developed quickly.

Arla says that within three years of launch, lenders were offering a much wider range of buy-to-let mortgages to rival those sold to owner-occupiers. Now, around 70 lenders have these mortgages, although more than half of all buy-to-let loan activity is still written by the six members of the Arla panel: Mortgage Express, Paragon Mortgages, Gmac, NatWest, The Mortgage Business and Birmingham Midshires.

Gus Park, head of buy-to-let at Bradford & Bingley, says that over the past five years these mortgages have moved very much into the mainstream. “More people have become involved so many more lenders have come in and the market has become a lot more competitive,” he says.

The last 12-18 months has seen a significant relaxation in lenders’ demands on buy-to-let loans. They have reduced the required rental cover and level of cash deposits and have cut interest rates. Investors can now secure a buy-to-let mortgage at around the same rate as a residential mortgage, more or less in line with base rate. Ten years ago they could pay up to 4 percentage points higher than base rate for a buy-to-let loan.

When buy-to-let emerged, mortgage providers typically demanded that the rent was 130-150 per cent of the mortgage interest payments to give a cushion for void periods and maintenance costs. They are now much more lenient, with some happy to lend at just 100 per cent rental cover. There are concerns that if interest rates rise, these lower levels of rental cover could cause problems for some investors, potentially forcing them to sell properties.

Meanwhile, loan-to-values – the level of borrowing as a percentage of the property value – have risen. Most lenders now offer loans of up to 85-90 per cent of the property value, compared with around 75 per cent 10 years ago.

Nigel Terrington, chief executive of Paragon Mortgages, says the relaxation of criteria reflects the realisation that buy-to-let is not as risky as lenders first thought. “There has been an adjustment phase in the criteria [for buy-to-let mortgages] as lenders have seen a better credit performance than expected. A risk analysis of buy-to-let versus residential shows residential loans have a higher risk profile.”

Latest figures from the Council of Mortgage Lenders showed that 0.68 per cent of buy-to-let mortgages had been in arrears for more than three months, compared with 0.97 per cent of normal loans. Terrington puts this down to buy-to-let landlords typically being older, more mature borrowers who have stronger financial positions.

He expects strong growth to continue in the private rented sector, driven by a growing student population, immigration and the “decline of the first-time buyer”.

Park of Bradford and Bingley says one recent trend in the buy-to-let market is that fewer individuals are building up larger portfolios. Recent research by Bradford & Bingley showed that the average property portfolio has increased from three per landlord in 1996 to seven this year.

This could be bad news for first-time buyers, who are often vying for similar properties as buy-to-let investors.