Buy-to-let: Bad for renters, bad for first-time buyers – and now bad for everyone?

The buy-to-let ‘boom’ that has occurred over the last twenty years, coinciding with the huge growth of the private rented sector more generally, has meant this kind of mortgage has been normalised within the British psyche, but without perhaps enough analysis of what it means for the economy and wider society.

Of course, private renters and potential first-time buyers have been critics. It’s clear that the tax advantages that buy-to-let landlords enjoy means many people are crowded out from buying a home just to live in.

With new pension rules from April this year that have allowed retirees to take out their state pension in a lump sum, it’s likely this disparity will only be exacerbated.

For renters themselves, the terms set by buy-to-let mortgage lenders often mean landlords are bound to offer short-term tenancy agreements or forbidden from letting to someone who is claiming benefits.

So we know buy-to-let holds back aspiring first-time buyers, reduces security of tenure and encourages income discrimination. But a recent intervention from the Bank of England suggests that the lending terms on which many of these mortgages are granted could also contribute to future financial instability.

In its latest Financial Stability Report, the bank has said that easy access to credit being used to invest in buy-to-let could lead to higher house prices and greater household indebtedness. With a potential rise in interest rates looking more likely, higher mortgage rates could make it harder for some buy-to-let landlords to maintain their current properties.

If defaults start to become more normal, or buy-to-let crashes more widely, we need to make sure private renters are protected and not just evicted through no fault of their own.

To that end, local authorities should be looking at provisions to buy up properties in this situation and carry on as the landlord, while central government should consider how it can get in institutional management firms to buy up larger portfolios with the ability to offer more secure and affordable rents.

Of course, those tenants who want to buy the properties they are currently renting should also get that opportunity if their landlord defaults.

For too long, buy-to-let has been allowed to act as a cash cow for certain investors without the wider socioeconomic consequences being considered; if we are to see a downturn, let’s make sure policy is in place so benefit those who would be the immediate victims – millions of private renters.

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