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Brokers warn Berlin-style rent freeze would kill off buy to let ‒ analysis

  • 20/06/2019
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Brokers warn Berlin-style rent freeze would kill off buy to let ‒ analysis
Replicating the rent freeze newly installed in Berlin would be dangerous, unfair and kill off what’s left of the buy-to-let market in the capital according to intermediaries.

The German city’s government this week approved plans for a five-year freeze of rents, after recent years have seen the costs for tenants jump significantly.

Germany’s finance minister Olaf Scholz has been quoted as offering his support for the scheme, to ensure that the city does not “end up like London”.

But brokers have dismissed the idea that a rent freeze in our own capital would actually help tenants or prospective first-time buyers.

Unfair to investors

James Mole, managing director of London Belgravia Wealth Management, said that such a scheme could lead to “significant and unknown” knock-on effects, warning that the last thing the country needs is instability within the property sector at the moment.

He continued: “I can’t help but feel that it wouldn’t be fair on those who have put all of their retirement savings into buy-to-let, who would be then told they would not able to increase the rent in line with inflation.

“There are two sides to every coin and I don’t think it’s fair to punish one demographic to give to another on a whim.”

A shortage of good rental properties

David Sheppard, managing director Perception Finance, said that a similar rent freeze in London would create a “dangerous situation”, with landlords selling up, putting downward pressure on house prices, but also leading to a shortage of good rental properties.

He added: “There is the argument that lower house prices could mean more people being able to buy but in some cases I feel it is probable that more people could be able to buy already but do not think they can.  I still get people asking now if three times income is the maximum they can get due to that being the norm around 25 years ago.”

Sheppard suggested that there are already options for people who cannot afford to rent a single property, such as a flatshare.

“The market offers many solutions for those in different budgetary situations.  At the moment Gumtree has over 12,000 adverts for room share accommodation, for example.”

Leave the market alone

James McGregor, director at Mesa Financial Consultants, argued that the market “should be left alone for negotiations between landlords and tenants”, as too much regulation can cause more harm than good.

He said that if such a freeze was implemented in London it would have a “huge” impact on the mortgage, but added “to be honest the buy-to-let market in London has pretty much died a death anyway ‒ it is clear the government are trying to eradicate smaller landlords”.

Scrap Help to Buy

McGregor argued that a better way to address the capital’s housing issues would be to remove the Help to Buy scheme, as it is propping up “false” house prices.

McGregor added: “If this is scrapped, property prices would have to reduce naturally as people would only be able to buy properties they can afford. Simple supply and demand economics would take effect. I would then make the government set up their own development companies to build properties at cost instead of for profit.”

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