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Bruce Banner

Ignore The Landlord-Martyrs: It’S Time For The Bank To Intervene Over Buy-To-Let

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http://www.theguardian.com/money/2015/dec/20/buy-to-let-ignore-landlord-martyrs-time-for-bank-to-act


The poor persecuted buy-to-let landlords of Britain. Many are developing a martyr complex – victims, they feel, of a barrage of new taxes coming in from next year. They will have seen the latest intervention last week – potential new powers for the Bank of England to restrict buy-to-let mortgages – as yet another blow. In online forums landlords share their woes about the “latest tax grab” and ask “why are we so reviled?” – although the answer may lie in another discussion thread where landlords swap tips about “How to tell a great tenant the rent has to go up a third”.

All the Bank of England is doing is saving landlords from their own greed. It is almost beyond dispute that buy-to-let landlords have fuelled price rises generally, and priced out many potential first-time buyers. Now the Bank is concerned about risky lending and wants powers to restrict the size of buy-to-let mortgages, to prevent boom turning into bust. In other words, the Bank is intervening to protect the value of landlord’s assets from falling.

If the Bank really wanted to level the playing field between landlords and first-time buyers, it could require buy-to-let investors to take out repayment mortgages rather than interest-only ones. After all, that is what conventional homebuyers have been forced to do since the regulatory crackdown on the mortgage market after the financial crisis. It’s just not fair, argue young buyers, that landlords are able to enjoy much cheaper mortgages, which give them the financial firepower to elbow aside other buyers.

It should also vex the Bank that the Financial Conduct Authority makes lenders “stress-test” first-time buyers to ensure that they can still afford their mortgage at 7% interest rates, yet landlords are only tested at rates rising to just 5% or 5.5%. One department of Halifax or Santander will ask a homebuyer if they can afford the loan at 7%, while the other asks if they can afford it at 5% or 5.5%. It is inexplicable.

But the Bank knows that if landlords were forced to take out repayment mortgages and be stress-tested at 7%, then almost the entire buy-to-let game would implode, sparking the sort of market rout that the Bank is so keen to avoid. The truth is that the Bank’s new measures are not about fairness and equity between types of buyers in the property market, but in making sure that financial institutions are not resting on a bed of buy-to-let nitroglycerine.

It is understandable that the Bank should want some stability in asset values. But it’s a shame it can’t also intervene to offer tenants some stability. The words “rent control” raise the blood pressure of the landlord-martyrs to dangerous levels, yet if policymakers want to maintain financial stability not just for landlords but also for their far more numerous tenants, they need to be considered.

Last month, Ireland introduced “rent certainty”, largely to protect tenants in the Dublin area, where the property market is once again at feverish levels. The measures include increasing the rent review period from one to two years, so that someone who saw a rent rise in 2015 won’t see another until 2017, and much greater protections for tenants. We need to start contemplating measures like this for Britain, but also offer landlords a quid pro quo. It can take six months or more to evict rogue tenants, who find it easy to abuse the legal process. This is daft: Germany gives tenants much greater financial stability than Britain, but is tougher on both rogue tenants and rogue landlords. The private rented sector in Britain has grown like Topsy. We should be taking a leaf out of Ireland and Germany’s books to make sure it doesn’t go turvy.

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Obvious solution is build to let by the state.

Private BTL has been a disaster for UK housing.

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The Middle englander Buy toileter is going to be flushed down the bog for the sake of the bankers necks.

True, but last the whole country paid the bill. Now just a couple of 100k get scalped.

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True, but last the whole country paid the bill. Now just a couple of 100k get scalped.

Yeah, it remains to be see what the "government" will do when it goes belly up.

I am still sitting here watching this unfold with total disbelief.

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