Thursday, August 9, 2007

Buy-to-letters – not immigrants – to blame for the housing bubble

Are immigrants to blame for soaring house prices?

In terms of the economics of the housing market, the impact of immigration has been hugely over-exaggerated - largely by vested interests who are hoping to see the property bubble last for as long as possible. As arguments go, the old supply and demand one is pretty compelling. You can't argue with basic economics. But there's one key fact that proves that there isn't a physical housing shortage...

Posted by mary @ 10:25 AM (473 views)
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7 thoughts on “Buy-to-letters – not immigrants – to blame for the housing bubble

  • This article uses the number of BTL mortgages to measure the number of BTLs but in fact it’s worse than that because a lot of people are becoming private landlords without going through the BTL route.
    For example, people deciding to rent out their old house rather than sell it when they move. Goodness knows how they can afford it, but I know several people who have done this but I don’t know anyone who has taken out a BTL mortgage. They pay off the mortgage on the old house and take on a new whopper mortgage for the owner occupied one.

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  • At last a decent explanation other than the tired ‘lack of supply’.

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  • Bottled-to-let says:

    You’re right Cyril. There is so much covert BTL it’s untrue, and I can’t really blame the BTLers for doing it, since the rates for FTB are loads better, and nobody is ever going to check. From my close friends who live in London near me (mainly graduates), about a third own properties on first time buyer mortgages, but only one of these has property in London that they actually live in! These include 6 who bought through parents as guarantor at northern universities or near their parents’ towns in the north, but now live down here in London, renting out to northern tenants but on an FTB mortgage. Then there’s another mate in the army who moved to a southern barracks, and his letting out his FTB house near his old barracks up north. Another lad from Belfast, who bought there and is renting it out while living in London. Thing is, they are all renting down here in London on tenancy agreements, so should the proverbial brown stuff start impaling onto that fan, they don’t have the option of simply moving back into the house they own, since the properties are hundreds of miles away from their jobs, and there’s no way they would be able to command the same salary should they move back north! Of course, their response is ‘well I’ve made so much in capital gains anyway, I’m in it for the long term’ – hmm, we’ll see about that when the four figure mortgage payments start hitting their bank accounts while the rental isn’t coming in, and their illiquid asset’s capital gains start turning into capital depreciation.

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  • BTL landlords are always described as speculators – a speculator is someone who is buying for the short term. Most BTL look at the rental property as an alternative to a pension. When you consider the returns made from a typical insurance company’s pension, who can blame them? Maybe property prices have got ahead of themselves – but what other investment produces increasing income and capital returns over a longer term, and where you can control the asset. A few BTL may be forced to sell if interest rates continue to rise, but I cannot see a mass exit of BTL from the market unless there is an adequate alternative way to provide for retirement.

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  • Most BTL “investors” see it as an alternative to a pension. They are not short term speculators. Who can blame them when you see what insurance company pension policy returns. At least with property the income and capital values rise in line with inflation, even if prices are ahead for now. Maybe a few BTL will be forced to sell if interest rates rise but I do not see there being a mass exit unless there is a reasonable alternative waty to provide for retirement

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  • Agree with you Cyril. A lot of people I know are not classic BTL landlords but have taken on a bigger mortgage whilst keeping and renting their original property. In most cases they did this because they saw a property they liked and could not sell their own.

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  • shipbuilder says:

    Thank god for articles like this with a bit of sense.

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