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The Buy-to-Let effect

publication date: Apr 8, 2008
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With various concerns now being expressed regarding the buy-to-let market and the usual ‘doom mongers’ suggesting this is the downfall of the entire residential market, I would suggest that this is not quite the disaster that is anticipated.

Buy-to-let investors do not trade up but first time buyers trade up within three to five years and become second time buyers and likewise second time buyers become third time buyers. That traditionally was how the residential market always operated. However buy-to-let investors are not to be decried, particularly when they are overseas buyers who are helping our own letting market by allowing for rental accommodation to be available.

With many house builders previously experiencing that 70% of cheaper flats in their developments are being purchased by buy-to-let investors, with a more flexible market evolving with more first time buyers being attracted and available to buy for their own occupation, this hopefully will create a more balanced market.

The current climate where certainly the smaller private investor and ‘wannabe private investor’ has been attracted to the market on a highly geared basis at the lower end of the market and who are now experiencing a difficulty as the returns do not match the mortgage repayments now find that when they sell their property their purchaser is a first time buyer who has previously been renting.

Indeed this is now the opportunity for the government to instigate a mortgage assistance scheme for first time buyers to enable a ‘kick start’ if the predicted down turn evolves in the residential market. In particular as higher deposits are now required by many Building Societies and lenders a Government assisted loan scheme to help with initial deposits would be a relatively small sum compared to what has been required for other scenarios such as Northern Rock!

What does not seem to be recognised is that during the 1930s millions of houses and flats where built in the suburbs not only in London but also in every major city in the UK.

In the 1950s the New Towns were built, ie Harlow, Crawley, Stevenage etc. If it were even suggested that a new Town was built in the middle of the countryside today as happened then, people would be lying in the roads and fields to stop any development.

What is not often realised is that only 10% of the country is actually built on and the sad and unfortunate fact of life is that in order to accommodate our ever-increasing population a stable residential market has to be created based on an adequate balanced supply of housing. This can only be achieved by a drastic approach to not only planning issues but also the financial facilities being available.

Ian Lerner, Registered Law of Property Act Receiver