How buy-to-let was bailed out, is back, and may be bad for Britain
The British housing dream was about owning your own property. Somewhere along the line that turned into owning other people’s property too.
And though many expected the credit crunch and the recession to put paid to buy-to-let, with many stories of city centre flat hell, it never happened across the country.
And now, the cult of the amateur landlord is back, and you’ll be able to see that in my film on tonight’s Channel 4 News.
Property values have held, rents are now rising, a piddling number of repossessions, the government is slashing red tape, mortgage volumes are surging (though from a low base), and the old names in buy-t0-let (BTL) lending, such as Paragon, are back in the game.
In fact BTLers were the undoubted unintended champion lucky winners from the emergency slashing of interest rates by the Bank of England. Whilst charging thousands of pounds in rent, their interest only mortgage deals – especially those on trackers – charge just hundreds of pounds.
But this is not just about low interest rates. The ability of banks to service this relatively new market was undoubtedly saved by the bailout of Britain’s banks. Buy-to-let only formally started in 1996. Yet, remarkably, Channel 4 News has established that 56 per cent of buy to let mortgages ever lent in Britain now sit on the books of bailed-out banks.
Roughly half of the outstanding buy-to-let mortgage stock is currently being nursed by the State in some form. Bradford & Bingley and Northern Rock’s joint £30bn BTL mortgage book is being slowly run off, in direct government hands from an office in London. And then astonishingly, in figures that the mortgage industry does not want you to see, that have been passed to me, about 65 per cent of buy-to-let lending in the year after the banking bust, was coming from bailed-out lenders.
Buy-to-let is a quasi-nationalised industry.
None of this would matter, if buy-to-let was unequivocally good for everybody. But it is not. It is clearly redistributive, a means of concentrating wealth where it already lies, and has questionable impacts on social mobility.
The old government’s key housing affordability tsar told me that BTLers had been directly outcompeting first time buyers for the same housing stock. It is common knowledge at the top of the mortgage industry that between 2005 and 2008, buy-to-let replaced first time buyers as the “marginal buyer” in the housing market. In other words, BTL pushed up house prices ever more, at a time when they appeared to be falling. Good for some, not for all.
I saw for myself how, even now, estate agents would market £100,000 houses in greater Manchester to well-heeled investors in Kensington on the basis of rental yield. Buy-to-let means that multiples of rental yield replace multiples of salary as the pricing mechanism for our homes.
So BTL has a dark side. It has undoubtedly pushed house prices up, and reduced the stock of owner occupier housing. That said, for those suffering from non-existent returns on savings, it is easy to see why they are attracted to the returns from landlordism.
Now that the government owns the majority of this industry, the fact that it creates winners among the rich and wealthy, and losers amongst the poor and young, is a matter of profound public concern. Indeed in Lord McFall‘s much complimented Treasury Select Committee investigation into the financial crisis, one of the ignored recommendations was for the government to come up with a strategy for what to do with “its” buy-to-let book.
It could perfectly reasonably be pointed out that this is part of a healthier long term trend away from Britain’s property obsession towards more renting. Instead of the historic UK aspiration of 80 or 85 per cent of households being owner occupiers, we are heading towards 60 or 65 per cent, closer to the EU average.
But there are winners and losers from that process, and I see no public debate, despite the public stake.