Property Investors Make it Tough for Normal Homebuyers
Buy-to-Let has always been one the UK’s property market success stories but at a meeting of the Treasury select committee on the 15th July, MP’s expressed their concern that Buy-to-Let is becoming part of the problem.
According to numbers published by the Council of Mortgage Lenders, there were more than 16,000 buy-to-let loans approved in May 2014. A significant increase from the 14% of mortgage borrowing buy-to-let accounted for in 2014, 11.5% in 2012 and 9.5% in 2011.
The increase has MP’s concerned to Mark Carney, governor of the Bank of England, that buy-to-let investors were taking away supply from residential purchasers and pushing up property prices even further.
Increase in Buy-to-Let Property Investors
Buy-to-let has traditionally been reserved for professional landlords but with decreased pension returns, low savings rates and an unstable stock market, home owners have begun turning to their homes or flats as a tangible asset.
In 2012 there was a dramatic increase in first time borrowers who were also buy-to-let borrows. There was an increase in the number of applications from established middle-aged home owners who were choosing to let rather than sell their homes. Therefore, even those buy-to-let mortgages have higher interest rates and higher minimum deposit; the investors can use their current property’s equity to help with the buy-to-let mortgage.
Another reason for the increase in buy-to-let property owners is the fact that mortgages are not regulated or subject to the same restrictions as residential loans, including the Mortgage Market Review that was introduced in April.
Worries for First-Time Buyers
The MPs at the Treasury Select Committee expressed their concerns that buy-to-let was causing difficulties for first-time buyers because it is reducing the amount of available properties for purchase and forcing the prices to increase to even more unreachable prices. MP’s are worried that this has potential to destabilise the rehabilitating housing market.
The MPs are also concerned that the increased amount of investors cash will be put into the buy-to-let when the pension fund liberalisation is entered into force next year making it even more difficult for first-time buyers and increasing housing prices even more.
The PMs were anxious to hear some potential solutions for the heating up buy-to-let market from Mr Carney.
Carney said that buy-to-let lending could be subject to similar restrictions as the ones introduced to residential lending under the Mortgage Market Review. He also said that the Bank of England would consider a possible loan cap of 15%.
However, there are no plans to implement any of the stricter restrictions but Carney assured the committee that the Bank of England would be watching buy-to-let lending closely, particularly next year when the pension relaxation rules might see investors with lump cash sumps to buy properties.
Andrew Bailey, deputy govern for the Bank of England has recently expressed his concerns over rising housing prices and said that they are the “biggest threat to the stability of the UK economy” and people are in agreement across the UK. It’s essential that the government implements stable and proportionate policies to cool down the housing market so that it becomes more sustainable for first-time property buyers, established house owners, landlords and renters.