Are People Starting To Move Away From Buy to Let Investments?
Believe it or not, there are buy-to-let investors that are questioning the morality of the industry at the moment. Some are even pulling out of the property market because of this.
Brian Hall, Model Works founder, said in one of his interviews that buy-to-let properties in the UK are overhyped because low supply and high demand for residential spaces are causing rental rates to blow up. While this is a win for the landlords, this is a big loss for aspiring homebuyers, since more of the money they want to save up will have to go to their monthly rent from now on.
One of my former colleagues recently sold 2 of his buy-to-let properties in Essex, because there were so many first time home buyers who cannot afford to buy a house in that area.
You see, in the neighbourhood where his properties were located, it’s rumoured that only 4 landlords own 80 per cent of all the rental property in that area. This colleague of mine just can’t wrap his head around that concept that 4 people can keep a large portion of residential properties (and hence, control the prices in their favour), while hardworking first time home buyers struggle to get the keys to their very first property.
What’s worse is that there are buy-to-let landlords who go out of their way to use the equity on their properties to outbid homebuyers in order to corner the market. For instance, I talked to a 38 year old IT consultant recently and he said that he and his wife are being forced to rent, despite having a combined salary of £65,000. He shared that every time they would place an offer for any property, a buy-to-let landlord would outbid them by using the cash from their property portfolio.
He added that even his friends who had families and above average salaries are also being forced to lease, because they can’t compete with the £50,000 deposit that some landlords offer sellers.
While there are those who feel conflicted about investing in buy-to-let properties, some still continue to pursue and defend this investment strategy.
The Home Builders Federation claims that the UK needs 230,000 new homes every year, but only 110,000 homes are actually built. Chris Norris, head of policy at the National Landlords Association, explained that demand from privates investors actually contributed in growing the numbers of newly built homes in the UK and without it the actual number of new properties may even go down.
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), revealed that in order to help people struggling to buy a house, majority of lenders were actually looking to increase lending to first time home buyers and those with small amounts of equity.
“We expect to see even greater choice appearing for 90% and even 95% mortgages, which will certainly help to drive down pricing,” he said.
In the end, it really boils down to the investor if they choose to be ethical or not. Personally, I believe buy-to-let investing can already be a lucrative business without having to engage in shady practices. Doing so will only add more grey hairs to your head because shady practices always attract more enemies and problems along the way. Are you truly willing to trade the ability to sleep well at night just to earn a couple more hundred bucks a month?