The buy-to-let (BTL) market has seen rapid growth over the past decade, with estimations indicating that the market is currently worth over £38 billion a year.
However, this boom has coincided with a dramatic fall in the number of first-time-buyers (FTBs), and Gordon Brown in his role as Prime Minister admitted that housing was one of his major priorities. Some have already stated that the government is not doing enough, and according to a recent study by the Council of Mortgage Lenders (CML), FTB income multiples increased to 3.31 times the average FTB income, with FTBs spending almost 20 per cent of their income on mortgage interest payments. With affordability stretched to breaking point, a number of commentators have called for greater action from the government on helping aspiring FTBs step onto the ladder. Although Brown appears to be taking note, it would seem that helping FTBs will not come at the expense of the profitable BTL market – a sector many have blamed for the demise of the average FTB.
Limiting opportunities?
In today’s climate, property is viewed as the major sector of growth, surpassing stocks and shares as a way of maximising potential revenue. As a result a greater number of individuals are turning to property to supplement their income; they are opting to buy properties typically associated with the average FTB; one and two-bedroom flats and houses. With the growing influx of investors to the already saturated market, Lord Greaves urged the government to reconsider the possibility of limiting BTL investors’ opportunities within the market.
Speaking at Prime Minister’s questions, he asked if the government planned ‘to introduce measures to restrict the amount of lending for BTL housing purchases, or to tighten the tax regime in relation to BTL housing’ – a proposal that was rejected by the government, with Lord Davies of Oldham indicating that it was up to individual firms if they wanted to move into the BTL market. Baroness Andrews added that ‘the BTL market had helped the UK economy, and had helped to drive up quality and choice within the private rented sector through investment in newer stock’.
A convenient scapegoat
Andy Wiggins, director of mortgage products at Mortgage Express, urged people not to blame the continued BTL boom on the drop in FTB numbers. He explained: “There is a danger that the BTL market is becoming a convenient scapegoat. The growth of the BTL market is not stopping FTB getting onto the market, and last year the CML indicated that there were two and a half times more purchases by FTBs than BTL investors. Also the BTL figures include remortgages, which makes up over 50 per cent of all transactions. I have never heard of an FTB that had been priced out of the market because a BTL investor had also bid for the property. Due to rental demands, the BTL market is already capped.”
Wiggins continued: “The BTL mortgage market will start to flatten over time to match the rest of the market and although the growth will continue over the next couple of years, outperforming the rest of the sector, the growth will slow to match that of the wider market.”
James Cotton, mortgage specialist at London & Country, agreed that the FTB problems were a result of affordability issues, rather than housing stock and property investors. He said: “The growth in the BTL market has had nothing to do with the falling FTB numbers. It is wrong to cast BTL as evil. If the BTL market had not experienced the growth that it has over recent years, I don’t think it would have had any affect on FTB numbers. In some areas FTBs are pitted against BTL investors, but this has a very small part to play. BTL growth can not be blamed for the falling FTB market.”
Don’t rush in
Mark Gordon, head of product development at Platform, admitted that the BTL sector had led to a change in the wider market, but urged the government to think before rushing into any decision about the future of the housing market. He said: “There’s no doubt that the growth in the BTL sector over recent years has had some direct impact on the number of FTBs entering the market. Figures from the CML show that FTB loans in 2001 were at 568,000 compared with 410,000 in 2006. In direct contrast, BTL loans in 2001 stood at 185,000 but rose to a substantial 849,900 by 2006.
“Having said this, there are a large number of factors affecting the FTB market, not just the boom in BTL. As a lender that offers products for both the professional landlord as well as the FTB, we would not be in favour of a proposed cap. A buoyant BTL market is healthy for the economy, so instead of restricting one sector of borrower, lenders need to be more innovative in developing product solutions for the FTB and work closely with industry bodies and the government to ensure any potential imbalances are sufficiently addressed going forward.”
It would seem that affordability constraints, rather than pressure from the BTL market, are to blame for the dwindling number of aspiring FTBs entering the market. If Brown is to succeed in his promise to improve the housing crisis in the UK, then his first move must be to increase affordable housing stock.
