We are living in crazy times. The Bank of England is talking about negative interest rates and Liverpool Council is selling houses for £1. And buy-to-let is booming.
On the continent, dissatisfaction with the government and the establishment resulted in Beppe Grillo, a comedian, securing 26% of the vote in the Italian general election and here UKIP came from nowhere to get 28% in the Eastleigh by-election. Of course, the incumbent politicians dismiss this as a protest vote. We will see.
Regarding our problems in homebuilding and homebuying, the government is relying on the respective industries to define solutions, but they appear to have little to offer. 2.5m tenants would like to become homeowners but their initiatives don’t even scratch the surface of this enormous and ever growing challenge.
Those excluded from homeownership for life will be £500,000 to £1m worse off, depending on whether one includes their lost pension contributions.
We obviously have an enormous problem. The nation’s coffers are empty and we need to keep the homebuilding and homebuying sectors going. Individuals with cash or equity are being encouraged to plough it into the private rented sector.
I suppose a reasonable return for such an investment would be somewhere between a fixed rate bond and the FTSE 100, given a zero risk at one end of the scale and higher risks at the other. Logically, buy-to-let cash buyers should be content with this return and tenants couldn’t complain that they are being exploited either.
Then, as the economy recovers and exclusion is eliminated (note I don’t necessarily link these two events) buy-to-let cash buyers could sell up and move onto better forms of investment. Everyone wins and no one can criticise this strategy.
Not so with geared buy-to-let investors. They actually borrow funds to acquire their investments while those that can’t borrow must rent. We are looking at the same homes, the same people in residence and the same lenders providing the funds but now the tenant has to pay more because the landlord requires their cut.
The Association of Residential Letting Agents claims this cut will be 22% of the sum invested per annum. This figure is nonsense, but propaganda like this will not go down well with young families, struggling to make ends meet, renting in the PRS and unable to save a deposit or meet lender criteria on overpriced properties.
There are consumer forums where these problems are aired by those affected. But like most forums they have little real influence. By way of contrast, builders are represented by the HBF, lenders by the CML, housing associations by the NHF and PRS landlords by the NLA. These organisations bring data and cogent arguments to the government and they have real influence.
So maybe the fundamental problem is that the most important group, the 2.5m prospective homeowners renting in the PRS, have no representation. They have no data and no voice. Instead, those that would exploit them have all the power.
Ironically, these growing unhappy millions are taxpayers. They own many of the banks, and they fund them with deposits and via the £80bn Funding for Lending Scheme. They are voters too; it’s just no one is listening to them. Not yet.
Mark Prisk has stated that the market is dysfunctional and the clock is ticking for the government, builders and lenders to come up with practicable solutions. There are millions of votes for the party that takes the cause of PRS tenants seriously, but if they don’t, the consequences for geared buy-to-let investors could be serious.
For more information on the buy-to-let market, join Mortgage Solutions at the Buy to Let Market Forum on 30 April and 2 May 2013.
