The report claimed the speculative nature of the current market, particularly buy-to- let, made it prone to volatility.
The report’s author David Pannell said a combination of stricter underwriting by lenders, a decline in the financial rewards of buy-to-let, interest rate rises and impending FSA regulation could cause a market downturn.
The report went on to say that each housing cycle was different and while the current market did not display the same characteristics of the 1980s crash, the sector would be vulnerable if large numbers of buy-to-let investors move to sell.
However, the Council of Mortgage Lenders (CML) disagreed, saying in its latest fortnightly newsletter that buy-to –let looked sustainable and robust with only one in 200 loans experiencing arrears of three months or more.
Bradford & Bingley’s specialist lender Mortgage Express also rejected the reports conclusions. Product development manager Roger Hillier pointed to the government-commissioned Barker Review, which found that an additional 145,000 homes a year would have to be built in order bring UK house price inflation down to European levels.
Hillier went on to say: “Research we carried out in January showed 51 per cent of our buy-to-let customers wanted to maintain their position and 49 per cent were looking to increase their portfolios. Only 1 per cent wanted to leave the market.”
Pannell countered, saying: “In February 2002 people who had invested in equities said they saw them as a long-term investment, yet they all changed their minds in March when the market began to fall.”
Malcolm Harrison, spokesman for the Association of Residential Lettings Agents (ARLA), claimed the report was flawed as it failed to take into account the fact house price crashes coincided with booming rental markets, which encouraged buy-to-let investors to keep their investments.
He said: “People still have to live somewhere.
