Government conspiracy behind BTL crackdown
Writing in his quarterly newsletter this morning, Lawrenson pointed out that a few weeks ago the Bank of England admitted it was wary of the buy-to-let market, suggesting that buy-to-let investors would respond to falling house prices by selling their properties, which would deepen any housing crisis.
But Lawrenson said there is no evidence to support such an argument. Landlords who bought new build flats from 1997 to 2002 in the overheated markets of Leeds and Manchester had suffered huge capital losses. But he said many kept hold of their homes and the few that sold boosted housing supply for the rest of the market.
Lawrenson reckoned the government and the Bank are using any excuse to clamp down on buy-to-let.
He said: “All the evidence points to arrears rates being lower on buy-to-let lending than on residential mortgages, which implies that landlords are clearly not too stretched financially.
“So, is there a secret government agenda at work here? We think possibly so.”
He added: “There is a concern amongst some that buy-to-let lending is over-dominant and ‘crowding out’ first time buyers.
“This is a view that Jeremy Corbyn would probably agree with as well as some Conservatives.
“This conveniently ignores all the new build stock that was built off the back of landlords’ cash.”
Lawrenson said buy-to-let mortgage volume data is being used to drive government policy despite cases of ‘gaming’ being rife – where borrowers, assisted by brokers, live in the properties with buy-to-let mortgages to avoid Mortgage Market Review stress tests.
And more controversially he accused the government and lenders of protecting these non-landlords despite knowing the figures are dud.
Lawrenson added: “We don’t think there is much crowding out because we think the data on buy-to-let mortgage volumes is flawed. I will explain: We think lots of the so called ‘buy-to-let loans are actually being taken out by buyers to live in themselves, often with the connivance of many mortgage brokers.
“This is how many home buyers get around the ludicrously over-the-top checks on residential mortgages that were put in place following the Mortgage Market Review.
“They simply get a buy-to-let loan, thus neatly avoiding all the income and expenditure checks that apply on residential mortgages.
“We think this practice is quite widespread and maybe rife. Thus, we think the reported volume of buy-to-let loans is significantly more than the number that are actually really being used to let a property with.”
“We also think the lenders’ checks to stop this happening are weak in practice and the volumes of buy-to-let loans overstates the true number being used for letting. Of course, we cannot prove it.
“The real craziness is that this duff data is being used to drive government policy.”
He said: “And there maybe another twist too.
“Perhaps the government and lenders know what is happening and understand that lots of these so-called buy-to-let loans are really being lived in by residential owners – and it is the fear that it is these non-landlords won’t be able to keep up with mortgage repayments.
“Instead – and conveniently – it is landlords who are getting the blame.”
David Hollingworth, associate director, communications, at London & Country Mortgages, reckoned Lawrenson makes a valid point when it comes to landlords sticking it out through the thick and thin in the case of house price falls – but he was cynical about the argument that buy-to-let gaming represents a big enough chunk of the market to skew the figures.
He said: “He makes a fair point talking about how landlords reacted in the wake of the credit crisis when there was an expectation that stock would be dumped on the market.
“What it underlined is that lots of landlords have gone in rightly seeing it as a long-term transaction.
“Of course there were some people who thought they could make a quick buck out of buy-to-let but most landlords look at things from a long-term perspective.”
He added: “Where lenders newer to the market have to adjust is we are at a low in the interest rate cycle and it’s about how we deal with rises in the future. Those landlords are currently likely to be switching onto fixed rate deals.
“When comparing landlords with those from 1997 to 2002 it should be noted that some landlords have entered the market in a different cycle.
“That’s not necessarily going to end badly but those landlords will need to prepare for when rates do rise and I think most will.”
He said: “Lenders are very aware of the use of buy-to-let to skirt round affordability issues and the market is quite hot on that topic to try and kick out those fraudulent applications.
“I’m not entirely convinced how big that proportion of buy-to-let is – I think that’s overegging it.
“That’s said the reason lenders and brokers are live to that activity is borrowers do attempt it, but it’s hard to pinpoint what level it’s at and I’m not sure you could call it rife.”