Yesterday (5 January), perhaps in a fit of pique brought on by labouring into the office with a stubborn cold on a frosty winter morning after a prolonged festive break, I wrote some acerbic words about the mortgage market.
Among other things, I railed against the ‘unfairness’ which I believe is entrenched at the heart of the market and which seems to gift cheap, plentiful mortgages to a growing population of private landlords, while first-time buyers or other lower income wannabe homeowners are increasingly priced out of the market.
Based on the handful of comments below the blog and the more voluminious and vehement responses I received directly, opinion was polarised, not least with the call for tougher regulation to discourage buy-to-let borrowing.
I love nothing more than a healthy debate, so here are some thoughts setting out, for want of a more elegant way of putting it, why I’m right.
First a few facts. House prices may have cooled a little in recent weeks, but they were still up by more than 8 per cent last year, according to data published by Nationwide Building Society and quoted by The Guardian.
According to a piece published by our parent paper the Financial Times last week, all five of the main house price indices recorded major rises over the past 12 months - and three out of five now have prices between 4 per cent and 10 per cent above their high watermark pre-crisis.
Now of course, supply is a factor here: we’re building less than half of the houses we need to satiate rampant demand, according to most estimates.
However, purchases for rent are merely exacerbating the issue. According to figures published in the Times, 2.4m of the close to 3m homes built since 2001, around 80 per cent, were bought by private landlords. An article in the Telegraph last week claimed that by 2032, more than one third of UK properties will be privately rented.
Data published by the Daily Mail in November from Kent Reliance revealed the value of buy-to-let property in the UK is set to top £1,000bn this year, which would represent an increase of around 40 per cent on the pre-crisis peak.
According to figures published in the Times, 2.4m of the close to 3m homes built since 2001, around 80 per cent, were bought by private landlordsThe same article stated there are now 627 buy-to-let mortgages available compared to 142 in 2010; I know from my own forays into the housing market these are typically at far lower rates with far lower deposits than residential alternatives.
At the same time - and I would argue as a direct corollary - rents are spiralling. According to reports in the Telegraph and Independent, rental costs are now at new record levels having risen 4 per cent over the past year. In the Capital and the south, they are up 6 per cent and 9 per cent respectively.
At the risk of being melodramatic, at a time when benefits are being cut and food bank use is growing, this is close to indefensible.
As a case in point, according to figures quoted by Owen Jones in the Guardian last summer, the number of private renters in London claiming housing benefit to pay or top up their rent had risen from 100,000 in 2002 to 250,000 in 2010.
There is more than just a pity story here: the economic argument stacks up, too.
For a start, at a time when the budget deficit - the amount we add to our already precipitous debt pile each year just to pay the bills - is running at somewhere near £95bn, we are paying around £24bn in housing benefit.
It gets worse. According to a report by left-leaning think-tank Intergenerational Foundation, buy-to-let investors are given tax breaks equivalent to around £13bn each year, which equates to around £5.2bn in lost revenue to the Treasury.
Much of this relief is in relation to mortgage interest, which landlords can offset against income for tax purposes. For the record, the ability of residential buyers to get relief on their mortgage interest was removed in 2000, when mortgage interest relief at source was axed.
In my view the case for intervention is clear, especially as April’s pension reform is expected to see millions more ploughed into property by older generations already sitting on the largest slice of property wealth. The question is, what form should the intervention take?
More than the government’s self-confessed ‘minimum’ implementation of the EU’s Mortgage Credit Directive, which excludes most buy-to-let transactions, that’s for sure.
But maybe it’s not about conduct regulation, but about curbing the incentives. Removing some of the tax breaks to ensure landlords pay a fairer contribution, say, or tightening up rules so that private renters do not face the prospect of their costs rising on a whim and landlords cannot act with impunity with high handed evictions.
Think-tank Civitas said in a recent report that a new regulatory regime was needed in the private rental sector which would give tenants new rights to stay in their home as long as they want, along with guarantees that their rent will not increase above inflation.
Will parliamentarians act on this? Well according to figures gathered from the register of MPs’ interests by centrist political website Political Scrapbook, more than a fifth of them could stand to lose on their own buy-to-let investments if they pass rules to control the sector, including 29 per cent of Tory MPs.
I hope that wouldn’t stop them acting for the greater good.
ashley.wassall@ft.com
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