Buy-to-let good times are here to stay

The rapid rise in house prices coupled with relatively stable wage inflation has widened the affordability gap for first-time buyers.

It may appear that first-timers have to compete with affluent and astute buy-to-let investors to get on the property ladder.

There is no doubt that these are tough times for first-time buyers and that the buy-to-let surge has played its part in rising house prices. Individuals are being forced to rent rather than buy, which fuels buy-to-let growth.

But despite this bleak outlook there is good news for first-time buyers, not least the growth in equity experienced by their parents which allows families to help support house purchase in a way unheard of a generation ago. Lenders are introducing schemes that allow the affordability of parents to be taken into account when children apply for their first mortgages.

First-time buyers play a vital role in a healthy housing market as they drive liquidity and support prices. For example, savvy lenders have redesigned products and changed criteria to reflect today’s market with higher income multiples and LTVs.

So although mortgage payments for first-timers on average earnings now account for around 42% of pay compared with 18% in 1996, low interest rates and lenders’ schemes have helped in the affordability of servicing debt. The effectiveness of these adjustments and the resilience of first-time buyers are confirmed by the results of research by Nationwide which shows that first-time buyers still account for almost 40% of house purchase transactions.

This aside, one cannot ignore the fact that today’s first-time buyers aren’t as eager as they were to step onto the property ladder.

Young people who previously would have been doing all in their power to buy homes are turning their backs on home ownership and opting to rent. Buy-to-let investors are feeding this demand.

andy young is managing director of The Business Mortgage CompanyThe private rented sector has grown over the past 20 years due to fundamental changes in social attitudes home ownership.

People are coming into the house buying market later to enjoy the freedom of their 20s without being tied to mortgages or locations. Priorities have changed and travelling and trying out different jobs have become appealing, causing the demand for rental properties to swell.

In light of such socio-demographic trends, pundits foresee that the buy-to-let boom is here to stay. At one end of the scale we see people turning to property investment as an alternative to pension funds while at the other we see should-be first-time buyers opting to rent with no intention of settling down.