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Millions can't afford to get on the housing ladder. Stuck with sky high prices and dodgy landlords - paying rent and unfair tenancy charges, insecure, under pressure and unrepresented.

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Proposed further tax breaks for Buy-to-Let Investors "a betrayal of First Time Buyers" says PricedOut

PricedOut, the national affordable housing campaign, today responded to government proposals to further increase the tax breaks available to Buy-to-Let investors. PricedOut are concerned that the government proposals, contained in a Treasury Consultation Paper on the role of the Private Rented Sector, would further constrain the ability of First Time Buyers to enter the housing market.

PricedOut's research finds that First Time Buyers are substantially financially disadvantaged compared to Buy-to-Let landlords when purchasing property, owing to the tax breaks enjoyed by private investors.

Using Council for Mortgage Lender's data, PricedOut estimate that tax and mortgage advantages mean that, on the same salary and for the same house, an average Buy-to-Let investor would have to pay the equivalent of one seventh of their net income on the mortgage whilst a First Time Buyer would pay one third of their net income – even before BTL rental income is taken into account.

PricedOut spokesperson, Katy John, said: 

"The large tax breaks that Buy-to-Let currently enjoys mean that they can always out bid First-Time Buyers. It is astonishing that the government is seeking to further entrench this inequality in the housing market"

"It is impossible to reconcile these proposals with government claims to be on the side of First Time Buyers and to be the party of progressive housing policies. It is time the government gave First Time Buyers a fair chance to compete - rather than kicking away all hope of joining the housing ladder."

"The First Time Buyers who contact our campaign are desperate to get on the housing ladder, but all too often find themselves in direct competition for properties with Buy-to-Let landlords that they can't compete with."

PricedOut is publishing its response alongside new research, which shows for the first time the full extent of the negative impact of the buy-to-let market on priced out First Time Buyers. PricedOut's research reveals that:

  • Despite substantial levels of market house building since 2003 there are now two thirds of a million less houses available for First Time Buyers to buy . Rather than increasing supplies of affordable housing stock, the buy-to-let sector, which has increased ten-fold in the last ten years, has created a net loss to potential First Time Buyers and owner occupiers of 647,300 properties since 2003.
  • The extent to which Buy-to-Let has contributed to UK financial instability. Eight of the top nine UK Buy-to-Let lenders in 2007 have now either been rescued by the tax payer after threatened bankruptcy, are closed for further business or have been badly damaged by the financial crisis and are undergoing substantial retrenchment.

The Treasury's recommendations in their February 2010 consultation paper include:

  • Paving the way for further tax breaks for UK property investors, who already enjoy unfair tax advantages over First Time Buyers. This includes a proposal to reduce the level of Stamp Duty paid by Buy-to-Let investors when buying multiple properties.
  • Inviting increased speculative investment from larger, institutional investors , such as pensions and insurance firms, increasing volatility in the UK housing market and the wider economy.

Buy-to-Let investors already have substantial tax breaks in the UK residential property market through the ability to write off mortgage interest payments against income tax.

Ms John further commented: "High house prices and Buy-to-Let speculation have been behind a large growth in wealth inequality and have caused increased financial instability for Britain" .

"The public now face several years of higher taxes and spending cuts - it is frankly baffling that the government is trying to give further tax breaks to a sector that helped get us into our current economic mess."

"Unless we want future home ownership to be the preserve of the wealthy few we need the government to tax property speculators more, not less. Removing Buy-to-Let tax breaks would be a very popular and practical way for the Chancellor to start addressing the deficit."

PricedOut is calling on the UK Government to:

  • Remove the current unfair tax advantages that UK buy-to-let investors have over First Time Buyers . For existing residential property, buy-to-let investors should not be able to write interest payments off against tax;
  • Increase buy-to-let mortgage regulation via the Financial Services Authority and implement much tighter restrictions on buy-to-let mortgage borrowers and lenders, with the aim of reducing the volatility of the private rented sector and its corresponding impact on the stability of UK house prices;
  • Discourage investment from the Private Rented Sector that is primarily based on expectations of capital gains. The Government should reverse its previous cuts to capital gains tax to a level consistent with current income tax rates and introduce a substantially higher capital gains tax rate on investment property owned for less than ten years. The government also should clamp down on widespread capital gains tax avoidance;
  • Improve tenants' rights for the estimated 87% of renters who do not rent by choice and are, predominantly, priced out first time buyers, to improve their security of housing.

Press Release Ends

For media enquires, please contact PricedOut Press Officer, Katy John at Katy@pricedout.org.uk  or on 07545 147771
www.pricedout.org.uk

Notes to the Editor

About PricedOut
PricedOut is a campaign group representing the interests of First Time Buyers (FTBs) who are currently unable to afford housing in the UK. PricedOut aims to raise awareness of the damage being caused by unaffordable house prices through its website, its campaign activities and active canvassing of policy makers and the media.  [1]PricedOut was founded in February 2006 and is staffed entirely by volunteers. We have more than two thousand registered members.

Whilst there are a number of organisations, charities and campaigns dealing with the important issues of social housing and homelessness there is no group representing First Time Buyers who are being negatively affected by unaffordable house prices.

About the Treasury Consultation Paper

PricedOut has today launched its formal response to HM Treasury’s February 2010 Consultation on the Private Rented Sector, which can be found in full at: http://www.hm-treasury.gov.uk/consult_investment_private_rented_sector.htm

About PricedOut’s Response

PricedOut has six key causes for concern arising from the Treasury’s consultation paper:

1. The Treasury paper shows a weak understanding of the dynamics of the UK housing market, and fails to address the impact of increased demand created by the exponential growth of the Buy-to-Let (BTL) sector on UK house prices and the negative impacts this has for First Time Buyers and the UK economy.
 


Source: CML BTL mortgage lending data, Halifax First Time Buyer Review 2007

The number of Buy-to-Let mortgages increased tenfold from just 3.5% of house purchase mortgages in 1999 to 28.9% in 2006 [2].  This represents over 1 million new Buy-to-Let mortgages. Additionally, it is estimated that only 54%[3]  of Buy-to-Let landlords use Buy-to-Let mortgage finance to purchase their properties, meaning that, in reality, the number of UK Buy-to-Let properties is significantly higher. Conservative estimates calculate that this additional demand has added at least an extra 7.4% to UK house prices, equivalent to £13,485 on the average British Home[4].  This dwarfs the average amount spent by FTBs on stamp duty - £1,750 according to Halifax[5]. 

High house prices, driven in part by the rise in Buy-to-Let, have displaced an estimated 1.2 million 'new' households away from Owner Occupation[6]  and have led to around 1.4m fewer First-Time Buyer mortgages since 1999[7].  A recent report by the Council for Mortgage Lenders (CML) found that levels of Owner Occupation are at their lowest since the 1980s[8].

High housing costs also contribute a damaging drag on UK economic performance. They increase personal debt levels, concentrate individual wealth portfolios disproportionately in one asset class and increase vulnerability to external credit shocks. High house prices reduce labour mobility, add an additional cost to UK businesses in higher wages and drain disposable income out of the wider economy. The misallocation of resources impacts on the total level of investment capital available for businesses and wider consumption levels.

2. The Treasury Paper fails to address the negative impact of the speculative and volatile nature of the Private Rental Sector investment, which creates instability in the UK housing market and the wider economy.

Buy-to-Let activity has been highly volatile. The number of outstanding BTL mortgages increased ten-fold from mid 2000 to 2007. It then halved in 2008 and halved again in 2009. The main Buy-to-Let lenders in the UK were at the forefront of using new financing mechanisms, such as the use of wholesale funding markets and Mortgage Backed Securities issuance, which enabled the credit boom and left the UK particularly vulnerable to the credit crunch. Repossessions of Buy-to-Let properties are also higher than in the UK residential mortgage market – substantially so, well over twice the rate, when the ‘Receiver of Rent’ mechanism available to creditors is taken into account[9].

As a result, eight of the top nine UK Buy-to-Let lenders in 2007 have now either been rescued by the tax payer after threatened bankruptcy, are closed for further business or have been badly damaged by the financial crisis and are undergoing substantial retrenchment.

3. The Treasury Paper fails to acknowledge or address the highly uneven playing field created for PRS investors in the UK residential property market. Buy-to-Let investors are able to use financial products that give them greater purchasing power and exploit generous tax breaks to out bid First Time Buyers for UK property.

Unequal purchasing power due to the UK tax system and lax financial regulation has given Buy-to-Let investors an unfair advantage over First Time Buyers and lies behind the growing displacement of First time Buyers with property investors.

Council for Mortgage Lenders data analysed by PricedOut shows that, for an average First Time Buyer property, BTL investors’  mortgage costs – given their tax advantages and use of interest only mortgages – amount to just over a seventh of their net income, whereas FTB average mortgage costs amount to a nearly a third of net income. PricedOut are calling on the government to change the tax system to stop this unfair advantage and allow First Time Buyers a chance to get on the housing ladder. 

4. Contrary to stated UK government policy objectives, the UK Private Rented Sector has decreased the supply of UK housing available for Owner Occupation.

Rather than increasing the supply of UK housing, Buy-to-Let investment has created a net loss in the supply of houses available to UK First Time Buyers and Owner Occupiers. In the last six years, the net loss of total supply, including new build market housing, from Owner Occupation to BTL mortgage purchasers was 647,300 dwellings.  Despite substantial levels of private sector house building, BTL purchases has led to the total stock of Owner Occupation houses declining by nearly two thirds of a million homes. Rather than building new homes, since 2003 government housing policy has effectively removed at least 647,300 British homes that First Time Buyers can buy – flying in the face of government rhetoric to be helping First Time Buyers.

5. The Treasury paper fails to take into account the negative social impact of Private Rented Sector investment in the UK housing market, including rising house prices. Additionally, it fails to acknowledge its impact on inequalities in wealth distribution

High house prices, exacerbated by rising levels of Private Rented Sector investment in the UK housing market, have contributed to wide-reaching negative social impacts. Waiting lists for social housing are currently at a record high of 4.5 million people.  A recent study by Shelter found that 1.5 million adults say that they are unable to look after their elderly parents because they can’t afford to live near them, whilst 21% of 18-44 year olds, equivalent to 2.8 million people, are actively delaying having children because of high housing costs[10].

Inequalities in housing wealth are now highly pronounced and growing. According to new data, the aggregate value of housing wealth held by those aged 50 to pension age (representing 7.1 million people)- was £1,280bn, more than twice the housing wealth held by any other age group. The next wealthiest group is those between pension age and 75 (5 million people), whose housing wealth was £600bn. This is despite these groups being smaller in population terms that the 35-44 age group[11].  Yet the Treasury paper completely fails to acknowledge the wealth distributional impact of the Private Rented Sector, both through its macro level on increasing house prices and in the rents PRS investors secure over tenants- many of whom are priced out First Time Buyers.

6. The Treasury paper over-estimates, and fails to scrutinise, the demand for private rented accommodation in the UK, the majority of which is created by priced out First Time Buyers. Additionally, the paper fails to acknowledge or explore the relationship between greater levels of tenant security and the larger and more stable Private Rented Sector that exists in many European countries.

PricedOut challenges a key assumption of the Treasury paper, which states that the PRS meets the demand for rented properties in the UK. Whilst there is some demand for flexible, rented accommodation, a recent study by the Royal Institute of Chartered Surveyors found that only 13% of those who rent in the UK do so by choice. Instead, many would-be Owner-Occupiers are being displaced by Buy-to-Let investors. Sustainable, affordable housing is more important to priced out renters than flexibility.

UK renters face significantly weaker tenants’ rights than their European counterparts. PricedOut is concerned that, although the remit of this Treasury paper is the Private Rented Sector, it fails to address the rights of UK tenants. It also demonstrates a bias towards further reducing tenant’s rights as the key to growing the Private Rented Sector, a position which the European experience of greater tenants rights combined with larger and more stable Private Rented Sectors than the UK offers little support.

[1] See http://www.pricedout.org.uk/
[2] Council for Mortgage Lenders data
[3] See Ball, M. (2006) Buy-to-Let: The Revolution Ten Years On – Assessment and Prospects, Association of Residential Letting Agents (ARLA)
[4] See 'Buy to Let mortgage lending and the impact on UK house prices: a technical report', Ricky Taylor, National Housing and Planning Advice Unit, Department of Communities & Local Government.
[5] Halifax First Time Buyer Review, December 2007
[6] 'Affordability – more than just a housing problem', NHPAU, May 2009
  http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/2821472/First-time-buyers-set-to-rescue-house-prices.html    
  Council of Mortgage Lenders, http://news.bbc.co.uk/1/hi/business/8547902.stm
[9] Council for Mortgage Lenders, 'Buy to Let lending in 2009' http://www.cml.org.uk/cml/media/press/2540
[10] Shelter Research from February 8th 2010 and 18th January 2010 http://england.shelter.org.uk/news/february_2010/affordability_crisis_fractures_families and http://england.shelter.org.uk/news/january_2010/housing_costs_forcing_delay_in_having_children
[11] ONS, 'Wealth in Britain' survey, 2010. http://www.statistics.gov.uk/downloads/theme_economy/wealth-assets-2006-2008/Wealth_in_GB_2006_2008.pdf

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