Buy-To-Let scavengers prey on the housing market

You are bidding on another house, only to be outbid again. The housing market is hard. Not only does being outbid mean that you need to pay another month’s rent, it also means that housing prices will increase about 100 pounds a day until you bid again. Even as you hit the real estate office looking for something – anything – to buy, any potential properties are being sold to real estate agents and buy-to-let landlords.

Clever homeowners are quickly turning a few thousand pounds into fortunes. It must be nice to have the guts to risk everything.

It is one thing to be loose a home to another young family. It is a ‘kick in the gut’ to be gazumped by a buy-to-let landlord.

How are these people making money? Quite simply, they are taking advantage of the bank’s willingness to lend money, high interest rates, and house auctions. These house auctions allow them to buy properties at far less than market value. The landlord rents the house out at a nice profit, and then applies for a secured loan to finance the purchase of their next property purchase.

Despite the fact that the number of homes in the UK has grown more than 10 million in the last 50 years, there are 150 000 people on a waiting list for affordable housing. The term affordable housing has taken on an entirely new meaning in the last 5 years, not surprisingly, in tandem with the soaring buy-to-let market.

Figures from the Halifax state that the number of homes in the £1 million price range has doubled in the last five years. More than 600 postcode districts in the UK had a home sell in the £1 million plus range in 2006.

The Buy to Let market hasn’t only priced many new home owners out of the housing market, it has increased rents in some areas beyond the average consumer’s budget.

Hamptons‘ spokesperson Lesley Cairns revealed that demand is so high that many adults are finding themselves priced out of the rental market as well.

“There has been an increase in rising rents everywhere and as a result many tenants are unable to be choosy,” he told the Independent newspaper.

“For example, a recent applicant initially seeking a property in South Kensington for £550 per week has ended up taking a property for £1,000 per week – almost double their original budget.”

Where will it end? If history repeats the 1991 figures then the house prices will continue to grow for a few months yet. Even if interest rates increase, buy-to-let landlords will continue to buy properties, gambling on the fact that they can continue to increase rents.

A million dollar property portfolio is nothing anymore. The spiraling housing market has increased the average house to more than £180,000. An ambitious landlord can top the million dollar mark in a matter of months. Of course, most of it is mortgaged, but the banks don’t care.

The banks are not concerned about first time homebuyers or their ability to find affordable housing. The buy-to-let market places them in a win-win situation. If one landlord ‘drops the ball’ and petitions for insolvency, then another will snatch up the properties. In fact, the banks stand to make a tidy profit by stoking the buy-to-let inferno that is sweeping across the UK.

The demand from the buy-to-let sector is not slowing. Some analysts believe that the dramatic increase in house prices would have slowed, or even stopped, if the banks had not relaxed their criteria for buy-to-let mortgages a few years ago. In fact, until three years ago, only the wealthy could step into the buy to let arena. Now, anyone who has twenty to fifty thousand pounds to invest can start buying and renting homes.

The problem is compounded by the current trend toward smaller dwellings. This is enabling buy-to-let landlords to buy one house, and rent it to two households. This doubles the rent they receive per dwelling, and strengthens their portfolios.

A strong portfolio encourages banks to let the landlord borrow even more money.

The problem for the country is that buy-to-let landlords are focusing on industrial towns. They are buying up every available property, forcing prospective homeowners to rent. This is driving up the cost of homes and rents.

The ricochet factor with this scheme is that younger people are leaving areas where they have no hope of building a home.

Inward migration is also a major factor. Probably as damaging to the UK population’s ability to afford their own home as the buy-to-let landlords. Many migrants have the money to buy a home in the upper price ranges – causing bidding wars. Those who do not are willing to pay higher rents.

The ever increasing number of buy-to-let landlords are ravaging the housing market and increasing the cost of homes that are not suitable for their needs. At the moment, it doesn’t look like there is much that potential homeowners can do, except maybe hit the house auctions yourself.

There is hope. If the housing market drops, most buy-to-let landlords will find themselves facing a negative equity situation. This will force many of them to unload properties at reasonable prices. It will also prevent them from applying for mortgages to continue accumulating properties.

A brief look into the housing market spike of 1991 is enough to convince depressed first-time buyers that there is a reason to smile. A little patience and you may be laughing all the way to the bank.