12 October, 2008

Buy-to-let

There seems to be a huge amount of vitriol going around targeted at buy-to-let investors and I just don't understand it.

Yes, I would like to buy a house one day when I am secure enough to afford it. By secure, I mean borrow no more than 2.5 times our joint salaries and be geographically fixed in terms of career for a while. So, perhaps in 3-5 years, a house would be good.

In the meanwhile, renting is a boon to us. We can live in apartments far nicer than those we could otherwise afford, we can move every 6 months if we want to, if something breaks, someone else pays to fix it for us...

And I don't think there would be half as many nice properties out there if it wasn't for the buy-to-let market. If it wasn't for the investors, we would be in a tiny studio flat somewhere grotty or forced to buy a flat which means we can't be as flexible with our careers.

People complain that they can only rent because they can't afford to buy and that this forces them to be far less secure. I can understand that to an extent, but given that a lease can be for any length of time, why don't these people arrange with their landlord to have a longer lease? The landlord gets the guarantee that the property isn't sitting empty and the tenants get greater security - a win/win, surely?

Yes, to an extent, buy-to-let increase demand for property and this leads to a rise in price. on the other hand, I wonder how many of the new apartment blocks which are going up would have been built at all if it wasn't for the increase in demand for property caused by buy to let.... In addition, rises in houseprices in parts of the country such as London cannot be placed wholly at the door of the buy-to-let investors. London is an attractice city for many people to live, or they are forced to live there because that's where their job is, either way, it leads to an increase in demand for property in its own right - independent of the buy-to-let market.

The same people who complain about buy to let seem to be the same who would be willing to spend 5,6,7 or even 8 times their salary on buying - they are therefore hardly the people we should be turning to for considered, intelligent property advice, surely?!

3 comments:

nought.point.zero said...

- I agree that there’s nothing wrong with BTL
- BTL is just as non-evil as short selling: both are risky businesses where the practitioners can lose lots of money: BTL owners are among those most affected by the current naughtiness in the markets
- HOWEVER, when ordinary folk criticise BTL I think they’re actually criticising general problems with the housing market of which there are many
- The most obvious one is a major under-supply of houses in comparison to the past. Since the Second World War it’s been actually quite hard to build loads of houses in comparison to the population rise (including immigation, obviously)
- So it’s much, much harder for me (who already has) and you (who wants to in the future) to get onto the property ladder than it was for our parents. My parents’ first house was something like the equivalent of 50-60k in ***today’s money**** (probably about 5k in 1970s money). The same house would today go for about 200k in todays money
- I think people do have a right to be a bit annoyed about how massively, massively difficult it is to get on the ladder in comparison to 30 years ago (even if it isn’t the fault of BTL).
- Because of all this, I think it’s a bit harsh to just dismiss first time buyers’ worries and point out that if they can’t afford a house, they should just go and rent instead
- Because the main reason people refer to buying property as “security” isn’t so much the fact that it’s a long lease, but rather that the equity can provide financial security. You say that renting allows you to live in a nicer place, which is correct. But every month you pay that £500 rent (which is what it would be [per person, probably] if you lived in London, perhaps it’s less up north) you are paying £500 that you will never see again. Whereas homeowners gain the security of knowing that their monthly mortgage payments are going towards their own equity. This is particularly important given the current pensions climate (1) fewer people have pensions than in the past 2) almost everyone starts pensions later than they did in the past)

In summary: while you are right to defend BTL, I am surprised that you defend renting quite so much and I think you could have more sympathy for first time buyers. What say you to that?

Miss Middle of Manchester said...

The "renting is throwing aay money where buying is an investment" line is only true if we assume house prices will always rise. If there is negative equity, it certainly isn't true. You might as well make the argument that people should always aspire to owning their own car because whenever they pay to catch the bus, they are throwing their money away.

Given that until the middle of this century (or possibly as late as Thatcher allowing people to buy their council houses) the vast majority rented, and given that this is true across most of the world, I think we (in Britain) have a particularly unhealthy obsession with owning our own houses as early as possible - especially as jobs re increasingly not for life and people will more likely than not need to move around the country more for employment.

I accept your point that many general frustrations experienced by people are being vented at BTL investors.

nought.point.zero said...

Ending up in negative equity is still better than renting, all other things being equal. Get a mortgage worth 100k, pay it off and end up with a house worth 50k because it has depreciated is still much better than spending 100k on rent with nothing to show for it at the end.

The bus analygy doesn't really fall on your side. First of all, cars depreciate in value steadily over time. Unless it turns into a classic, a car cannot hold its value or rise, whereas a house can rise in price and certainly doesn't depreciate due to wear and tear in the same way that a car does.

But, if you are going to be getting the bus a lot and you think you've found a car that you can resell at a decent price, then you probably SHOULD buy it if it's going to save you money (although it won't because I've just rememebered the cost of petrol).

I staunchly defend the British obsession with owning property. A couple renting a modest flat in the south of England between the ages of 25-30, while they wait to be able to afford to buy, will throw away £36,000. Is that really such an insignificant amount?