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Are Buy-to-let Mortgages Ethical?

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Here's the article that was discussed before on here, published in Ethical Consumer (July/August 2006)

Kindly supplied by Simon Birch, the author, via a CSR forum.

Are buy-to-lets unethical?

What are the real costs of the recent trend for buy-to-let investments? Are they as ethically neutral as most people assume them to be? Simon Birch investigates

With the tv schedules bursting with property shows and the latest update on house inflation effortlessly making the headlines, we’re now a nation obsessed with bricks and mortar.

One aspect of this property feeding-frenzy which has gripped the country has been the boom of the buy-to-let market: seemingly everybody and anybody who can rustle up a mortgage has been jumping on board the buy-to-let bandwaggon with its promise of a quick and easy buck.

But just what are the real costs of the buy-to-let bonanza and is it as ethically neutral as most people assume it to be?

Buy-to-lets emerged in the late 90’s and despite a slow start, by 2002 they had taken off spectacularly thanks to two key factors:

Firstly there were very real fears over people’s pension provision leading to many people grabbing themselves a buy-to-let property as a long-term back up for their pension.

Secondly a poorly performing stock market meant that people were looking for more lucrative investment opportunities in which to invest their cash and buy-to-let proved to be a be sure fire winner.

So attractive have been the financial returns of the buy-to-let market that by 2005 this sector had exploded to form just under 10 per cent of the total mortgage market.

However questions are now being asked about the impact of buy-to-let.

“Fundamental social changes are going on with the growth of the buy-to-let market,” believes Andrew Smith from the Royal Institute of Chartered Surveyors.

“First time buyers and people on low incomes now find it very difficult to house themselves in this country. At the same time another section of society are buying multiple properties to rent out at a profit for themselves. This is definitely an issue which needs to be publicly discussed.”

Mr Smith’s concerns are supported with figures that reveal that people in the buy-to-let market own an average of 5.5 properties.

A major reason for this is that once you own one property it becomes much easier to keep on buying additional properties as your existing property can be remortgaged, releasing cash to create the deposit for the next property and so on.

But can this be right – is it ethical – for people to own a string of properties whilst first time buyers and people on low incomes are struggling to own just one house?

Sure, it’s argued that as we live in a free market people should be allowed to buy and sell as many houses as they like if they can afford it, but the crucial point is that houses aren’t mere financial assets to bought and sold like stocks and shares or gold bullion, housing is a basic human need up there with food and warmth.

The other main area of concern of the impact of buy-to-let is its effect on local communities and the way in which buy-to-letters which their beefed up financial clout are crowding out first time buyers and helping to fuel house price inflation.

In Manchester’s inner city district of Moss Side, Nikoleta Katsakiori has witnessed increasing numbers of people from outside the area buying up houses for investment which has helped to send house prices rocketing from £17,500 to £90,000 in just five years.

“They’re having a detrimental impact on the community,” says Katsakiori. “People who were born here can no longer afford to buy a house in the area.”

It’s a similar picture in northern Scotland which has been identified by property investment companies such as propertyhotspots.net as being perfect for buy-to-letters.

These companies specifically target low-income economy town such as Largs and Banff with disastrous results for the locals.

“We’re getting considerable numbers of buy-to-let owners from outside the area who are helping to price locals out of the market,” says Janice Duncan, an estate agent from Banff.

Not surprisingly the banks and building societies which have helped to fund the buy-let-bonanza deny any responsibility.

“Buy-to-let is still a niche market and has no impact on the wider housing market,” says Matt Grayson from buy-to-let specialists Birmingham Midshires. “It’s easy to blame banks and building societies for the current housing boom but ultimately it’s the market which sets house prices.”

Fair enough, buy-to-lets are only a small part of the housing market which is largely driven by other factors, but clearly buy-to-letters will be having some impact on house prices – or put another way it’s certainly not part of the solution to our current housing crisis.

Quite simply if you sign up to the buy-to-let market you’re buying into a value system which is helping to widen the gulf which already exists in Blair’s Britain between the haves and have-nots.

So does all this add up to make buy-to-let an unethical investment?

Perhaps the people best qualifed to answer this question are the residents of Moss Side and Banff who can no longer afford to buy a home in their own community.


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Been having a discussion about some of these issues on the Life Doesn't Begin at 50 thread.

Here's my entirely personal view on the ethics of BTL:

1. I have Sold to Rent STR...

2. ...Because I believe there's going to be a correction.

3. I'm glad there is more choice for renters in the private sector than when I was last renting between 1983 and 1996.

4. I'm glad that rents haven't kept up with house prices (is this because of more competition for tenants?)

5. I'm looking forward to the owner of my house (the BTL landlord) shouldering the pain and agony of the value falling while I happily pay rent.

Selfish reasoning I'm afraid, and no real comment on the ethics of it.

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