22nd February 2013
Buy to let (BTL) is on the increase accounting for 11.5 per cent of all mortgage borrowing in 2012, compared to 9.5 per cent in 2011. In total £16.4bn was lent to buy-to-let investors – a figure 19 per cent higher than the £13.8billion loaned in 2001. The Council of Mortgage lenders, which released the data, said that although half the 136,900 buy-to-let mortgages agreed last year were in fact remortgages, it means buy-to-let has emerged from its 2009 low when mortages, including remortages, totalled just 88,400. But there is growing opinion that growth in the buy-to-let market has come at the cost of would-be first time buyers, particularly in the south east of England.
Although the number of first time buyers has risen to its highest level since 2007, the number of those owning their own home last year fell for the first time since the 1950s and renting, now costs more than owning.
Halifax said average monthly costs associated with buying a three-bedroomed house were £621 in December 2012, £120 cheaper than the typical monthly rent of £741.
Although FTBs have long competed with property speculators, particularly in the south east commuter belt and in university towns where residential property is at a premium, even mortgage advisers argue that things are now too weighted towards BTL.
The Model Works founder Brian Hall told trade magazine Mortgage Strategy that BTL had been overhyped and because of increasing rents those who could afford a mortgage were struggling to save up the deposit to buy. He said: “There is this groundswell of opinion that buy-to-let is the only game in town and the only thing we can do. It is disadvantaging young people who cannot get on the property ladder.”
Buy-to-Let – the case against
Some BTL landlords are themselves questioning the morality of their investments when so many people – who want to buy a property – still simply cannot. On London talk show radio station LBC presenter James O’Brien admitted he had sold a property he was letting because he was unable to justify it.
And a former hedge fund manager, who asked not to be named, sold his two BTL properties because so many first time buyers are struggling to buy in the Essex commuter town where his portfolio is based.
He said: “We moved away and I could have kept the properties but I had heard that four landlords apparently account for 80 per cent of all its rental property stock.
“Although the figures are anecdotal it is widely thought that those landlords have singularly pushed up the price of properties for a lot of young people in the town including many families on above average incomes. With the recession I just didn’t feel comfortable being part of that. Now I’m using my money to invest in manufacturing businesses and put it to some real use.”
Nick Taylor, a 38 year old IT consultant said he and his wife were being forced to rent despite having a joint income of £65k. He said: “Every time we tried to buy somewhere a buy to let landlord would have got in there first, using cash from their property portfolio. Our deposit, £35k by the way, and the amount we could borrow on top of that.
Another commuter admitted: “If you didn’t buy a house around here 10 years ago, then you are stuffed. We’ve got several friends, all families married with children on above average salaries who are renting because they don’t have the £50k plus deposit to put down on a house.
“Yet swathes of streets are now being rented out, and it’s changing the nature of neighbourhoods. Young people just can’t buy. There are loads of flats being built in the town centre and most of them have had to be let to local authorities.”
Buy-to-Let – the case for
Who can blame the property investors? There is big money to be made, especially while supply continues to outstrip demand; the UK needs 230,000 new homes a year and is only building around 110,000, according to the Home Builders Federation.
Property and buy to let in particular has shown itself to be largely inflation proof and more reliable than a pension, and to some BTL investors their property portfolio is their pension.
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB) said the majority of lenders were actually looking to increase lending to first time buyers and those with small amounts of equity.
He said: “We expect to see even greater choice appearing for 90% and even 95% mortgages, which will certainly help to drive down pricing.”
Murphy says in his view it is the deposit needed is the main sticking point for first time buyers “The main challenges facing first-time buyers are less centred around mortgage product pricing but on coming up with the funds to use for the deposit needed.”
Chris Norris, head of policy at the National Landlords Association, admits that in some parts of the UK it could be suggested that landlords are restricting the supply of housing.
But he says rather than reducing supply, it is the demand generated by private investors which has helped to sustain what little building has taken place since the banking crisis.
“This investment has made sure that homes are available where they are needed to support local business and to underpin economic activity. We all want to see a market where a diverse range of people can access the type of housing and tenure they desire as it creates the communities we all want to live and work in, but to achieve this there must be more building to increase supply, economic growth to increase confidence and more flexible lending to help those on the bottom-rung of the ladder.”