First time buyer switch could bust buy to let landlords

The booming buy to let market may go bust if first time buyers take up government cash incentives to purchase a home. Landlords and lenders should draft a risk strategy to deal with this possible disaster, urges Andrew Gold, chief operating officer of Mutual One, a group supplying audit and compliance services to building societies. Gold suggests that the buy to let market is at risk if first time buyers take up offers like FirstBuy, launched by housing minister Grant Shapps in September. He warns these programs could switch young adults from renting to buying homes - leading to a dramatic market reversal from a lack of properties with hordes of would-be takers to a massive oversupply of homes to let unwanted by tenants. “There are merits in people renting. It gives more flexibility, particularly at a time when people are struggling with debts like student loans. Now there is innovation coming in, there are various schemes to get first time buyers in to take away the supply barriers,” said Gold. “If these are removed, and people become homeowners, as they broadly want to be, that will mean the demand for rented property falls and lenders may get their fingers burned. If the government’s first time buyer innovations are successful - and we all recognise the importance of that - this could hit the private landlord sector.” According to recent data from the Building Societies Association, 80% of young adults want to buy a home before they are 30 years old - suggesting a strong will to buy is strong if mortgage availability eases. “There are some trends that suggest it is a supply-side change rather than demand side as more products come onto the market. That is why you could get a bubble as people suddenly re-enter the FTB market to fulfil their dreams,” said Gold.

Landlord blog

Siobhan Smith

Further reading

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