Doing the maths

Posted by: Jules Birch

10/03/2010

So is buy to let dead as a dodo or was the coffin not nailed down well enough?

The first view came in a Guardian interview at the weekend with Fergus Wilson, the former maths teacher who bought up 700 houses with his wife Judith to rent out but are now selling them all off. Buy to let is, he says, ‘absolutely dead and will never return’.

That’s backed up by a truly heartrending interview with Grant Bovey (aka Mr Anthea Turner) in the Mail in which he decribes the ‘humiliation’ of being declared bankrupt with £50m of debts after the collapse of his property company Imagine Homes. ‘One day you were worth more than £100million, as I was, then it was gone,’ he says. 

Fergus Wilson says they almost went under too and were only saved by the sheer scale of the financial crisis. After the collapse of Lehman Brothers in September 2008, the Bank of England cut interest rates to 0.5% and they were able to refinance almost all of their loans. ‘We were going to be, to put it bluntly, stuffed,’ he says. ‘The reason we were saved was the drop in interest rates.’

That’s a tale that will be familiar to buy-to-let landlords around the country. Arrears, repossessions and appointments of receivers of rent were all rising up to that point but then started to ease off and there are now signs of revival. The latest figures from the Council of Mortgage Lenders (CML) show a slight increase in buy-to-let lending at the end of 2009 and there is also evidence that lenders are beginning to relax some borrowing restrictions. 

Another indication that the phenomenon is not dead comes with the CML’s continuing opposition to Treasury and FInancial Services Authority plans to regulate buy-to-let loans in the same way as normal mortgages on the grounds that they should be treated the same as investments. 

None of that has stopped the Wilsons dismantling their empire though. They are currently selling two properties a week in Kent, prompting Ashford Borough Council to write to them pleading for ‘staggered serving of notices on tenants’ to ‘give us some time to prepare options with future families that may become homeless’.

That’s a graphic illustration of the implications of buy to let for the rest of the housing system: it priced out of the housing market thousands of potential first-time buyers; it boosted house price inflation and put off genuine property investors and institutions who see the rental yield as paramount; and it was based on speculation not investment. However, it also played a vital part in the 50% growth of the private rented sector in the noughties (partly thanks to demand from those priced out) and arguably reduced the impact of the repossessions crisis.  

Buy to let is not about to lose its bad reputation any time soon (Wilson comments that ‘one or two people want to douse us with petrol and set us on fire, but I think that’s going a bit too far’). But with homeownership shrinking, social housing investment about to be cut and institutional investment in private renting yet to get going, where else will new homes come from?