What’s bad for FTBs is good for B2L

The government is taking action to address the shortage of new homes that is fuelling rising house prices but for now it\'s good news for the buy-to-let sector, says Sally Laker

Increasing house prices seem to have done little to dampen property demand as approvals for mortgage applications hit a total of 4,874m this September – an increase on last September’s total of 4,071, according to the Building Societies Association. Once again, records were broken with these approvals confirmed as the highest September figures ever.

Even taking into account the fact that the seasonally adjusted approvals figure was down by 6.2% on August’s total, there is no disguising the fact that mortgage demand will remain high – at least in the short term.

The prospect of a further interest rate rise before the end of the year curtailing demand is likely to founder because of one overriding factor – the housing shortage.

The government has long recognised that the shortage in housing stock – especially in the South-East – is a key driver in house price inflation.

It has developed several plans to deal with the problem. John Prescott’s idea to concrete over most of the Thames Gateway was one drastic response. The latest government wheeze is New Growth Points.

Twenty-nine areas in Britain have been identified as needing help to regenerate. These areas will share in 40m start-up funding to support infrastructure, unlock sites for new housing and to assess environmental impacts.

The government estimates there is the potential to deliver up to 100,000 new homes. The initiative is in response to a government review of housing supply which found that during the past 30 years house building rates have halved whereas over the same period demand for new homes has increased by a third.

There is an urgent need for new-build property. If we don’t build more homes, less than a third of today’s 10 year olds will be able to afford a place of their own in 20 years’ time.

The mortgage sector also requires new homes to come on-stream if it is to remain vibrant. The average asking price for a property in England and Wales is at a record 218,954 – 11.5% higher than a year ago, according to Rightmove.

This is having a detrimental effect on the sector because as prices increase, the supply of houses coming onto the market falls because fewer home owners can afford to trade up. This adds to the shortage of suitable property for sale, resulting in further upward price pressure where demand outstrips supply.

While there may be no respite on the horizon for potential first-time buyers, the present situation will shore up the buy-to-let sector. Renting for longer and buying your first home later, possibly via shared equity or an interest-only mortgage, is the new reality for many.

The danger is that with so many buyers unable to afford a mortgage in this housing climate, those who wish or need to move quickly may find themselves watching their homes sit on the shelf for months on end as mortgage brokers rely ever more on remortgages.

Perhaps this is a good time to be buying shares in house builders and firms in associated sectors.