From Mark Sutton, senior mortgage consultant at Connell
I read with interest the Market Watch article in issue 37 and would like to add to the debate with what I believe is a significant omission by the people interviewed.
In the past, when the number of first-time buyers in the market has reduced, the knock-on effect has been to change the market from a sellers market to a buyers’ market. This has usually resulted in a slowdown, which in turn has affected houses prices. This usually comes about when house prices rise faster than the rate that wages increase at, effectively pricing first-time buyers out of the market.
It would appear that this is what is happening at the moment, but the cries that there will be a slowdown, or a house price correction, seem to have come to nothing over the last couple of years. I think the answer lies in the rise in popularity of buy-to-let schemes especially while the return on other forms of investment are low. The type of property bought by investors is typically that which first-time buyers are looking for, thus the investor is effectively replacing the first-time buyer allowing the current first-time owners to become second-time buyers and so on.
My question is: what happens if the buy-to-let bubble bursts? We are already seeing the lettings market reach saturation point in some areas. It could be argued that because a lot of first-time buyers are choosing to rent, this helps this sector of the market become ‘self-propelling’, but surely this cannot carry on indefinitely. As an industry we cannot support ‘self-certification’ as a licence to stretch incomes beyond what is deemed realistic.