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Buy-to-let is far from dead

Created:
5 June 2008
Updated:
6 June 2008
Written by:
IC reader comment

Our recent article, provoked a robust response from buy-to-let landlords and others.

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"I am astonished that a serious publisher like the FT can be so grossly misleading and naive on such a sensitive issue to most people in the UK namely property ownership and letting.

"Your comments may prove to be OK for a tiny minority of recent and somewhat irresponsible Buy to Let investors, but these simplistic shallow and blatantly misleading comments are certainly not true for the market, or for the vast majority of "Buy to Let" landlords like myself and many of our clients.

"Your article is still trying (perhaps very successfully) to perpetuate the let's panic message by banging out the same old rubbish - which, if done consistently, can become a self fulfilling prophecy, so please desist and publish some encouraging and more balanced news to uplift the market and all home owners and renters!

- via email

Claer Barrett, the author of the article, responds:

"There are a number of points in your comment that I would like to address.

Firstly, if you refer to a much longer piece I wrote about the wider buy-to-let market (Buy-to-let: 20 tough questions), we clearly state that landlords who entered the market several years ago, did their research and are taking a long-term investment view will doubtless weather the storm.

The worst excesses of the UK's buy-to-let industry - a heady combination of cheap finance, an oversupply of shoebox apartments, investment clubs and a total lack of FSA regulation - have now come back to bite mortgage banks and housebuilders, not to mention the amateur investors who harboured dreams of getting rich quick. This is not to say the private rental sector itself is doomed - and it is certainly not the message I intended to give out in either article.

Investors who want to enter the buy-to-let market today will find they are limited to 559 mortgage products, compared to 3,648 in July 2007. The majority of lenders require a deposit of between 15-30 per cent, rising to the higher end of the scale for new build flats, whereas 100% loans were possible to find before the credit crunch.

Your comment about a 'tiny minority' of 'recent and somewhat irresponsible' buy-to-let investors sadly does not stand up to scrutiny. According to CML data, at the start of this year, there were just over 1m buy-to-let mortgages outstanding in the UK. Some 23 per cent of these mortgages were taken out in the preceding year, i.e. at the top of the market.

Many of these late entrants to buy-to-let were tempted by aggressively marketed new-build developments built specifically for the investment market. This probably explains why so many of them (particularly in the northern cities) are still without tenants.

With the clock ticking on so many of the ubiquitous two-year fixed-rate mortgage deals, an inevitable rise in repossessions will be further evidence that the buy-to-let boom is over."

And another:

"It is absurd for an FT journalist to say 23% of buy to let mortgages were taken out in 2007 and therefore 23% of investors came in at the top of the market. Landlords habitually refinance and the 23% includes refinancing. The actual figure is HALF of that when refinancings are excluded The sensible view is found in an article in today's Lex column. "

- Graham Cox, via email

Claer responds:

"I was not suggesting that the entire 23% increase in the number of buy-to-let loans excluded re-financing.

However, it stands to reason that re-financing deals available 'post-crunch' are not only scarcer, but on far less favourable terms, and falling house prices are not helping matters given the more exacting loan-to-value ratios demanded by lenders. For many landlords looking to remortgage, their lender's standard variable rate will be the only option - and a very expensive option at that.

The actual Council of Mortgage Lenders data is as follows:

New loans for buy-to-let house purchase in 2007: £23.1bn

Buy-to-let remortgaging in 2007: £20.8bn

If you look at the NUMBER of loans (as opposed to the value) the split is slightly different:

Finally, I note that the excellent Lex column to which you refer concludes that "The future is pretty dark... a rate cut is unlikely to help the housing market now."

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