By Jules Birch, Inside Housing

10/05/2013

So, three years after it was pronounced dead, can anything stop buy to let squeezing out owner-occupation?

Figures from the Council of Mortgage Lenders (CML) yesterday showed that loans to landlords accounted for 13.4 per cent of the £165.6 billion worth of outstanding mortgages in the first quarter of the year. That’s up from 13.0 per cent in the fourth quarter of 2012 and just 9.8 per cent at the start of the credit crunch in 2007.

All of which makes it easy to forget that it was only three years ago when the last rites were being delivered for buy to let by probably its best-known pioneers, Fergus and Judith Wilson. The former teachers built a 700-home empire but by 2010 they were bailing out and telling The Guardian that buy to let was ‘absolutely dead and will never return’.

They were selling up and retiring after starting into the abyss as the financial crisis hit its worst point in 2008. Ironically, the thing that saved them and thousands of other landlords was the collapse of Lehman Brothers and the way that the Bank of England responded by cutting interest rates to 0.5 per cent.

Seen from the perspective of 2013 that all seems a long time ago. There are now almost 1.5 million buy-to-let mortgages outstanding, 49 per cent more than in 2007 and 14 per cent more than in 2010.

Although the CML figures show the pace of growth has slowed slightly, cheerleading articles like this are appearing again in the national media as though 2008 never happened. A one-bedroom flat in Wales is apparently ‘the secret to buy-to-let riches’.

The market continues to be underpinned by ultra-low mortgage rates. As with the wider market, that may beg all sorts of questions about what will happen if and when they go back up to pre-crunch levels but in the meantime landlords have had a captive market of renters unable to raise a deposit to buy.

Meanwhile buy to let has received two significant boosts in the last month. First, agreement in Europe on a new mortgage credit directive confirmed that buy to let will not be subject to the same regulation as ordinary lending to homeowners. Second, the Bank of England extended its Funding for Lending Scheme to non-banks and expanded the definition of small and medium and businesses to include property investors. There are already signs that buy-to-let mortgage rates have begun to fall.

In the meantime, the decline of owner-occupation continues. Yesterday’s CML figures also showed that there are now 9.8 million owner-occupied mortgages, a fall of 2 per cent on a year ago and 8.4 per cent since early 2008. Overall, there are now 900,000 fewer owner-occupiers than at the start of the credit crunch.

Recent CML figures do at least show some signs of life in lending to first-time buyers. However, with Help to Buy set to extend help to all buyers and go higher up the income scale, they look set to be priced even further out of our dysfunctional and artificially inflated housing market.