Brian Hall, consultant and founder of buy-to-let index The Model Works
The launch of a new buy-to-let profitability index, in my view, focused attention on the inadequacies of existing indices.
Although many investors are making losses, ARLA still claims geared investors will see a 21.96% return. There are no standards and yield calculations vary because the sector is unregulated. Many providers don’t even publish their calculation methods. The data is at best, incomplete, inaccurate and biased.
Misinformation on buy-to-let returns is worrying. Since Gordon Brown wrecked our pensions system, 11% of the population is now relying exclusively on buy-to-let in their retirement and the sector continues to grow.
With regard to first-time buyers we need a solution to exclusion. Those affected will be hundreds of thousands of pounds worse off and be more dependent on the state, at a cost to the taxpayer of tens of billions of pounds per annum.
Examining the data critically, these underlying projections are compelling. Most young people don’t actually want to rent for life and tenants are voters too.
We need to get them saving (not paying ever-higher rents), get lenders focused on the problem and get affordable properties back into the market. Initiatives, like New Build, barely scratch the surface of this enormous problem.
If the industry remains complacent, simply pushing buy-to-let rather than resolving first time buyer exclusion, the government will act eventually.
Maybe they could reintroduce rent controls, stop retail lenders from ‘business’ lending, require that larger landlords incorporate and regulate smaller landlords while making changes to their tax relief and capital gains tax allowances.
Alternatively, the industry could take the initiative and collaborate with government. But considering the culture – where some lenders thought charging a 90% commission on PPI was a really neat idea – I won’t hold my breath.
Instead I publish data and encourage debate. Just don’t shoot the messenger.
See next page for managing director of Paragon John Heron’s response
John Heron, managing director, Paragon Mortgages
It is far too easy to characterise landlords as displacing first-time buyers. There is bound to be an element of this at some level but the majority of the evidence points to much wider and more fundamental changes going on in society.
The old model has changed; young people settle down much later in life, they are more likely to have gone to university and are more likely to be mobile in pursuit of their chosen career. A UK with more open borders has resulted in an increase in inward migration with most of those migrants exhibiting a stronger bias to rent than buy.
The shift in the ambitions and expectations of young people has changed radically with lifestyles. Whilst the desire for home ownership amongst the population as a whole remains high at around 80%, amongst the under 25s it has halved over the last ten years to 40%. Young people are happier to rent for longer, and to share with friends as a means of managing affordability in a central and vibrant city location for a few years before they settle down.
But the modest decline in the level of home ownership that we have seen over recent years is only part of the story; rather more significant is the decline of the social rented sector. As a result of Right to Buy the stock in the SRS has been seriously depleted falling from 25% in 1991 to just 18%. This stock is not being renewed through new build schemes in the social sector and is unlikely to be, the public funds simply are not available.
In short, we have seen a progressive reshaping of the housing market over the last 30 years or so. We have a sustained increase in the demand for affordable and flexible accommodation which is being met by the PRS. Looking ahead. few housing analysts anticipate a decline in rental demand, rather the reverse.
