Buy-to let; the end is nigh…maybe…possibly…

‘Could’, ‘may well’ and ‘possibly’; all suggestives and in the reporting this week of a BOE survey, cloaked in the shroud of doom and financial misery. Ah well. In another classic example of shutting the stable door after the horse has bolted, been caught, trained and handicapped to win the 2.50 at Chelmsford City, then ended its days in the Happy Horse Home/glue factory/lasagne, the BOE is looking at the potential risks stemming from the increasing number of participants in the buy-to-let market. What pre-empted Sir Jon Cunliffe-the BOE’s deputy governor for financial stability-briefing a hearing at the House of Lords that buy-to-let could potentially be risky, were figures released by the central bank that show lending to landlords has “surged” (is it just me or are you rather bored of hearing that word?) from 11.3% of new loans in the third quarter of 2007 to 15.6% in the same period of last year. Ok Jon-Boy (those of you who have been around long enough could start humming the theme tune to The Waltons). Firstly, we are looking at a period of 8 years, not 8 months. The increase in landlords may well be reflected in other comparable figures for the same time frame; not least an increase in the populace. For those who wish to embrace their inner nerd, the population of the UK on 31 December 2007 was 61, 327, 759.  The UK population on 31 December 2015 was 65, 039, 298 and as of 17:54 hours today 06 03 2016 it was 65, 102, 983. Got those memorised? Secondly, the 15.6% of the whole lending market means that 84.4% of the whole lending market isn’t engaged in facilitating buy-to-let borrowers. Sir Jon then offered up the results of a recent survey that threw up the result  that 60% of buy-to-let landlords would consider selling up if rental income could no longer cover their mortgage costs or if house prices fell by 10%. Let us consider these statistics. It was a survey, which by definition opens itself up to dubious results that frequently fail to materialise in the real world. For example, in the most recent census in England and Wales almost 0.9% stated their religion as Jedi, surpassing Judaism, Buddhism and Sikhism and making it the fourth largest reported religion in the country… and let us not forget the predictions of last year’s General Election, where a certain A Campbell was still insisting that the polls were right and the figures coming in were wrong, wrong, wrong. Mmm. More relevant to Sir Jon’s figures however, is 60% of what? Of whom? And the portent of doom is somewhat diminished by the lack of confirmation. They “would consider”, “if… they might”.  I might be considering taking up holy orders and if Miss Minogue decides to call off her engagement (be still my beating heart), I might consider offloading the current Mrs Chesh to a permanent vacation in the Rest Home for the Bewildered. Sir Jon then adds to the air of general indecision and vagueness by commenting that the buy-to-let market could lead to a downward spiral in house prices with the accompanying threat of instability in the housing market in general. He then does say that buy-to-let ,”looks like a pretty good investment” compared to what is offered elsewhere. What that be contradiction with a capital ‘C’ Jon-Boy?

Ok. Buy-to-let was not the cause of the 2007 crash; it was risky lending. Not to potential landlords, but to anyone who had a pulse. With a minimum 20% deposit required for a buy-to-let mortgage, a 10% drop in prices will not, in our opinion make people leave the landlord sector. As for rental not covering mortgage costs, with the same minimum 20% deposit and interest rates still at record levels and predicted to fall further (as we at Cheshire & Co have opined for the past 18 months, I may add), the chances of mortgage payments outweighing rental income is not going to happen anytime soon. If they did, landlords would simply put up rents and people would pay; because they could manage to make their rental payments whereas they would not have a snowball’s chance in hell of meeting the stress test criteria for a mortgage.

Speaking of passing tests, for those devotees of The Walton clan:

  1. What was the name of the town where Team Walton lived?
  2. Who were the US presidents during the era in which the series was set?

Answers on a post card or via social media. The winner gets a signed headshot photo of The Chesh. Second prize, is the full body shot. Third prize is the same, but without any clothes on. You have been warned.