Will the Buy-to-let market damage the housing market?

The Council of Mortgage Lenders has today published the latest figures showing that the Buy-to-let market had risen by 12% in the third quarter of 2010. Some 26,900 buy-to-let mortgages worth £2.8 billion were advanced during this period. There are currently around 1.29 million buy-to-let mortgages.

Demand for buy-to-let mortgages is being  fuelled by the increase in:buy-to-let-mortgages

  • earnings ratios on money invested in buy-to-let properties
  • the low cost of borrowing money today
  • the governments recent relaxation of stamp duty
  • the number of repossessions on the market
  • the number of tenants looking to rent.

First-time buyers who should have entered the mortgage market have struggled to raise the 15% deposit plus other associated costs to buy their first home. Many have struggled with meeting the lenders strict criteria on income multiples to secure a mortgage and surveyors have been reluctant to agree with the valuations of properties as advertised by the estate agents.

The first-time buyers are the life blood to the mortgage market moving again.  If first-time buyer’s do not enter the housing market then their are no second time buyers able to sell their homes in order to buy their next home. As this happens the mortgage market will start to slow down as it is at present. Then house prices will start to drop in value due to the lack of demand for second time buyers and the more expensive homes.

Just imagine a 12% jump in first-time buyers entering the mortgage market, the consequence would be a gigantic leap forward in the housing market. Lets assume that 12% amounts to 26,900 new first-time buyers entering the mortgage market who buy from other homeowners who want to move up the property market. Bingo all of a sudden we have gigantic movement in the housing market and a further 26,900 home mover mortgages being arranged.

This kind of result calls for some vision and the relaxation of lending criteria by the banks in order to stimulate the housing market. And there will always be room for the buy-to-let market as long as it is not left to them to stimulate the market, because all they will do is freeze the market place.

Your thoughts,  experience and comments are always welcome.

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