Apparently, the huge success of this key area of the housing market is bad for the UK economy. The irony defies belief
Bank of England deputy governor for financial stability Sir Jon Cunliffe says the current buoyancy in the buy-to-let market poses a threat to the UK economy.
That’s right: the huge success of this key area of the housing market is a bad thing for our economy. Why? Because landlords could decide that rental property is no longer a profitable investment and exit the market in their droves, leading to declining house prices and general chaos.
The irony of Cunliffe’s comments defies belief. Yes, it is entirely possible that some landlords will decide to quit the market because buy-to-let is at risk of becoming less profitable. And yes, I am sure that would damage the economy.
But why is it that the market is becoming less profitable? Because of Government and regulatory intervention. And why has that intervention occurred? In order to, apparently, make the market safer and the economy more stable.
The action being taken to supposedly make the market more secure is the very thing that could leave it at risk.
Cunliffe told the House of Lords that, while buy-to-let seems a good investment right now, that could all change. Indeed, the Chancellor’s planned cuts to landlord tax relief and hikes in stamp duty will certainly make sure of that.
I understand that a market should not be allowed to spiral out of control, and that an overheated market is no good for anyone. But surely, to say buy-to-let is a risk because landlords could stage a mass exodus and then to introduce policies that will actively drive them out is counterproductive to the point of foolishness.
My point is this: if it is deemed necessary to take cooling measures to prevent the market getting out of control, by all means take them. But introducing sweeping changes and ill-conceived policies that drive landlords away when the primary concern is preventing a large-scale withdrawal from the market is damaging, to say the least.
There is a big difference between lenders restricting LTVs and tinkering with rental calculations and the type of monumental changes announced over the past year.
If you do not want landlords to leave the market and risk instability, stop pushing them out.
Work with the industry: start discussions and consultations, and figure out the best way to maintain a safe and successful market.
Otherwise we may well see happen the very thing that the powers that be are trying to avoid.
Ying Tan is managing director at Buy to Let Club