This article examines how the significant increase in the purchase of homes for investment purposes, often referred to as Buy To Let (BTL), has affected the housing market to the detriment of Home Buyers and particularly First Time Buyers.
An uphill struggle for young Home Buyers
We are at pains to state that the Priced Out campaign is not against landlords or property investment in general since the rental sector is an important part of any healthy property market. However as this article will demonstrate the normal balance between the investment and owner occupied sector has become significantly disrupted over the last 5 years with very serious consequences for home buyers.
How big has Buy To Let become?
In an average year more than 1 million mortgages are arranged for the purposes of buying a home in the UK.
Over the last 5 years the CML reports number of loans being taken out for BTL purposes has risen from less than one twentieth (48,000) to almost one fifth of mortgages (a staggering 223,800 mortgages). This is an unprecedented event.
Why is Buy To Let a problem?
Given that there are only so many homes available to buy at any moment in time the surge in demand for BTL properties has simply pushed out traditional home buyers. With the CML reporting more than 700,000 outstanding mortgages the impact is obvious, BTL activity has displaced hundreds of thousands of, most likely, young home buyers. These figures may not even encompass the whole of the problem since they do not include investment properties bought without a mortgage and properties that have become BTL properties without notifying the mortgage company.
With affordability already strained many people blame the surge in BTL activity for supporting historically high house prices. What is for certain is that BTL investors are competing with first time buyers for the same properties and have more buying power. It would be remarkable if BTL has not had an upward or supporting pressure on house prices.
At the same time the cost of renting has stayed unusually low for a long time so much so that many new entrants to the BTL market may struggle to cover their mortgages payments or even have to subsidise them. In this scenario the only investment gain remaining from a BTL is that made from any rise in the cost of the property. Consequently we are possibly witnessing the largest surge of property price speculators into the UK property market in recorded history.
Urgent action is required
As a nation who prides ourselves on home ownership we need to ask ourselves whether we wish our homes to be used for young families to buy and live in or whether we want them to be owned by investors and speculators.
Our view is that the former should prevail and that the government should take action now to disincentivise Buy To Let as an investment class to restore a healthier balance to the market.