Friday, 12 September 2008

The buy-to-let madness continues.

The credit crunch doesn't seem to have hit the buy-to-let market. During the 12 months up to June, the number of BTL mortgages increased by 176,500. That is almost 15,000 a month.

The numbers are also impressive in terms of gross lending. Again, in the 12 months up to June, lenders poured ₤26 billion into the buy-to-let market. Between Christmas and June this year, the stock of loans went up ₤12 billion.

The BTL speculative craze now accounts for 11.5 percent of all outstanding mortgage lending. In fact, banks give more credit to BTL borrowers than first time buyers.

This week, Darling will launch another poorly conceived attempt to save the housing market. However, who will really benefit from government guarantees aimed at increasing mortgage lending? It won't be first time buyers, who are effectively priced out of the market, and who would welcome a significant correction to house prices. It will be speculators and property developers.

This is exactly what New Labour are about; while purporting to help the poor, they actually sustain inequality, self-aggrandizement and speculation. The next election can not come a day too soon.


Anonymous said...

I have an issue with BTL which doesn't seem to be much raised. Namely, that allowing interest repayment to be tax free for BTL ignores the fact that interest repayments are in fact capital repayments once inflation is taken into account.
For various reasons I am angry about the way that inflation seems to be ignored legally in the UK.
However, coming back to my main point...
If inflation is 5%, and your loan repayment is at 7%, then your REAL interest is 2%. Otherwise you ignore the devaluation of the main loan.
So the bulk of such tax relief in fact goes to repayment of the capital. Hence the existence of interest only mortgages in the first place. After 25 years the original loan doesn't look anyway near so much.
This seems a widely ignored fact. Particularly should we see mortgage relief for the unemployed. By all means, don't take me the wrong way, we all pay taxes and losing a job is terrible. Let all understand though, that mortgage interest payments by government are paying essentially paying off the actual loan itself rather than the interest.
I see the distinction as basically, what are you REALLY paying the bank for borrowing the money. So anything interest only by that reasoning would allow the debt to increase with inflation.
Interest only loans do not allow the main debt to increase with inflation.
This is the nature of government encouragement of the BTL sector and the shortage of affordable homes for the rest of us, as we are taxed at source whether for renting or owner occupying.

Alice Cook said...


Personally, I am very aware of what you are pointing out, which is that inflation is a) taxation, b) redistributes resources from savers to debtors.

This is one of the reasons why I believe interest rates should rise.


mike said...

I agree. Interest rates should rise and/or tax relief should be removed on BTL mortgages. Otherwise the poor get poorer and the rich get richer.

Why are we effectively giving money to BTL market when the economy is in trouble? Surely the people in the BTL market are the ones we should hit with higher taxes first. They are able to afford more than one dwelling and should be considered very well off. We could even start to tax second home owners through higher council tax which is also a way to get at them. But perhaps I am dreaming too much!

Houses should not be seen or run as businesses. It's not healthy for the economy when people are not able to move around during their working life because the town or city they want to move is too expensive to live in. Eventually you see skill shortages and the people who decide to rent are not settled or happy employees. Meaning they are less likely to stick around when the going gets tough.

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electro-kevin said...

The law of unintended consequences defines Nu Lab. Their raison detre' is to hold power for no other reason than power for its own sake.

At last - something from you about BTL.

What is the prognosis for it ? A serious analysis please. My own instincts tell me that it is still a safe long-term bet... at least in comparison to the alternative choices available.

Anonymous said...

Err, what difference would a change politicians make?

AC said...

This is really strange. Who would have thought that a year of falling prices would boost BTL ???

Who are these people taking massive leveraged bets that house prices will very soon start rising again (above inflation). No one would borrow to buy into a falling stock market !

I can't see above inflation capital gain coming back in the next five years. The only thing I can think of is that it is people under 30 who have no experience of investing, recessions or falling house prices. They made money over the last five years and they just see this as a buying opportunity ?

When these BTL investors are sitting on big losses over the next three years and start to sell there is no way house prices can recover quickly ?

Mark Wadsworth said...

Hang on a minute, I agree that FTBs are priced out of the market - they have been since about 2001 - but, until prices crash, shouldn't we be grateful for BTLers who are prepared to rent out their properties to potential FTBs at a huge loss? And give us something to laugh about when they go bankrupt?

Wouldn't 'speculators and property developers' welcome a significant correction to house prices as well, so that they can buy up more cheaply?

And I hate Nulab as much as the next voter, but as far as housing goes, what makes you think that the Tories will be any better?

powerman said...

"Wouldn't 'speculators and property developers' welcome a significant correction to house prices as well, so that they can buy up more cheaply?"

Only the ones with big cash reserves and little or no leveraging who want to make their profit from long term rental yield rather than 'flipping' a property after giving it a lick of paint, a cheap but glossy new kitchen and crossing their fingers that real estate hyperinflation will take care of the rest.

Anonymous said...

I don't quite understand why you would think it mad to buy up houses cheaply and let them, when interest rates are low and the country is full of people looking to rent through choice or necessity and yields are rising.

If you are right that the economic situation will be bad here for years then BTL will be (is) more profitable.

Clever investors always go for yield not capital growth even when they are highly leveraged. Capital growth (or loss) is, as we have seen, unpredictable and certainly not relevant in the short term to long term investors.

The people investing in BTL now are visionaries not idiots, even if property prices keep dropping for a few years it does not really matter. They are not selling and they'll keep raking in ever increasing yields. The mugs you see in the papers or on TV programs brought for capital gain and ignored yield when deciding to buy.

As for the feeling that houses should be exempt from speculation because they are a sort of sacrosanct object is a interesting but purely romantic idea. They will never be removed from commerce and certainly not be made less attractive for landlords to buy by this government and particularly the next.

Too many powerful people have their fingers in the housing pie.

Anonymous said...

"This is exactly what New Labour are about; while purporting to help the poor, they actually sustain inequality, self-aggrandizement and speculation. The next election can not come a day too soon."

You don't for a second believe the Tories will redress this situation do you?! Tax breaks, etc will multiply this part of Labours legacy.

The Tories could oversee a sustained period of council house building or purchase for the first time in their history, of course, but they will not.

ttimgg said...

"They are not selling and they'll keep raking in ever increasing yields.

You have mistaken income for yield. Increasing yield does not mean increasing income - it means decreasing capital value. The people investing now are idiots, not visionaries.

electro-kevin said...

There could be (WILL be) more shocks to come.

This country is beset with huge demographic, technological and social problems.

There is a shortage of land per capita - good for generating property demand ?

Not if we can't feed ourselves it ain't.

PS, You economists. Can the word brought ever be substituted for the word bought ? I hear this a lot now and it irritates the hell out of me.

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