Buy To Let Boom

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A landlord who bought a property with a 25 percent down payment in 1996 saw the value of their investment soar almost 15-fold by the end of last year, smashing the returns on shares, bonds and cash deposits, Wriglesworth Consultancy estimated in April. That’s just under 1,400% that buy-to-let has returned!

Emma Reynolds inherited two apartments and a store in London, then saved to buy a cockroach-infested investment property last year. Like Bank of England Governor Mark Carney, she’s worried about landlords pushing up property values with cheap money.

Large numbers of amateur investors are “doing it purely because of interest rates and they just see quick bucks,” said Reynolds, who is spending 25,000 pounds renovating her south London rental and hopes to become a full-time landlord. “It got overheated because people who would normally invest their money somewhere else were not getting a decent rate of return anywhere else.”

Buy-to-let loans have made up most of the growth in mortgage lending since 2008 as banks compete for borrowers, often by requiring that only the interest is paid each month. With the BOE about to end the era of record-low borrowing costs, Chancellor of the Exchequer George Osborne has hinted he’s ready to grant financial-stability officials new powers over the sector.

“The BOE is worried about the impact of rates rising and whether landlords will be able to afford repayments,” said Ray Boulger, senior technical manager at mortgage broker John Charcol Ltd. in London. “One needs to work on the basis there will be restrictions on buy-to-let drawn up in the near future.”

Buy-to-Let Boom

The buy-to-let market has exploded since lenders launched specialist mortgages in 1996. There are now an estimated 2 million private landlords owning one in five homes in Britain, and owing a record 188 billion pounds. Such borrowers accounted for almost 20 percent of new mortgages in the first quarter compared with 4 percent in the early 2000s.

The craze has been driven in recent years by a search for yield as the BOE kept the benchmark interest rate at 0.5 percent.

With homebuilding failing to keep pace with a growing population, officials may face an uphill battle to cool demand for rental homes. PricewaterhouseCoopers sees an additional 1.8 million private renters over the next decade.

“The macroeconomics that sustains buy-to-let within the U.K. economy remain,” Tom Wood, interim chief executive officer of buy-to-let lender Shawbrook Group Plc, said in an interview.

‘Directional Powers’

Having acted last year to stop homebuyers taking on debts they may later struggle to afford, BOE officials are seeking to strengthen their oversight over the home-rental market. Osborne says the Financial Policy Committee, which can already recommend that action is taken, could get “directional powers” this year. The panel holds its next meeting Sept. 23.

Amid concerns that investors are making it too expensive for young people to buy a home, Osborne took action of his own last month by cutting tax breaks that allow the wealthiest landlords to claw back 45 pence for every pound of mortgage interest they pay.

According to Goldman Sachs Group Inc. analysts Martin Leitgeb and Nick Baker, the new 20 percent limit on tax relief will reduce the volume of buy-to-let lending by about 10 percent relative to previous forecasts, with Lloyds Banking Group Plc and Virgin Money Plc among the worst-affected. At Lloyds, the biggest buy-to-let lender with a 28 percent share, Chief Risk Officer Juan Colombas says there will be no “material” impact on business.


Reynolds, who works in the development of non-profit housing, thinks she’ll achieve a yield of 4 percent to 5 percent after renovating the two-bedroom fixer-upper in London’s West Dulwich neighbourhood. When she viewed the apartment, which cost 225,000 pounds, one of the other two viewers was a landlord.

Ref: Bloomberg – UK Buy To Let Property Investment Specialists

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