Is Buy To Let Immoral? Part 1 of 2

Is Buy To Let Immoral? Part 1 of 2

With 15,475 private rented households in Colchester by 2021 does this make buy to let immoral? Shall we blame Colchester buy to let “Baby Boomers” (55 to 70-year-olds) for the current housing crisis in the town?

As the country slowly recovered from the economic hardships experienced during world war II there was a massive rise in births and they make up the Baby Boomer generation. Throughout the 1970’s and 1980’s the baby boomer generation in Colchester experienced (while they were between 20 and 40 years old) an unparalleled level of economic growth and prosperity throughout their working lifetime as a result of improved education, government subsidies, escalating property prices and technological developments. The baby boomers have emerged as a successful and prosperous generation.

A familiar theme suggests Colchester baby boomers have (and are) making too much money to the detriment of their children, creating a “generational economic imbalance”. While benefiting from house-price growth their children are forced into the rental sector or expensive mortgages – does this make buy to let immoral?

  • Between 2001 and 2017, average earnings rose by 65%
  • Average Colchester house prices rose by 143.8%

Colchester house prices compared to average earnings 2001 to today

This disparity is particularly acute for Millennials, people born between the mid 1980’s and the late 1990’s. These 18 to 30 year olds, moulded by the computer and internet revolution, in their view, are finding it hard to buy a property because “greedy” landlords are buying up all the property to renting them out at exorbitant rents. It’s a perfectly logical conclusion to blame buy to let landlords and see them as greedy, immoral, wicked people cashing in on their generation. How did the current situation come about?

What Can History Tell Us About Today’s Colchester Housing Market?

Here’s the three biggest factors that influenced the Colchester (and UK) property market in the later half of the 20th Century:

  1. Mass building of Council Housing in the 1950’s and 60’s.
  2. The Conservative government sold off most of those Council Houses during the 1980’s
  3. 15% interest rates in the early 1990’s resulted in many houses being repossessed.

It’s these three factors which underpin the housing crisis in Colchester today.

So how did we get into this position? It’s tempting to blame the USA because in 1995 the US government relaxed its lending rules by rewriting the Community Reinvestment Act. This relaxed the lending criteria used by banks which put pressure on them to offer mortgages in low wage neighbourhoods. The viewpoint in the USA, at the time, was that any working class person, even on minimum wage, should be able to buy a home. The UK followed their lead in the early 2000’s with banks and building societies offering 100% mortgages and then Northern Rock started lending 125% mortgages, it couldn’t last – and it didn’t, leading to the 2008 global financial crisis and we’re still living through the consequences.

So is Buy to Let Immoral Today?

Rolling the clock forwards to today those same irresponsible lenders are charged with following the Bank of England criteria for responsible lending. Mortgage applications from first time buyers are scrutinised in detail with every aspect of their expenditure questioned in detail – it’s no wonder Millennials are struggling to get mortgages – especially when their applications, more often than not, turned down.

By contrast buy to let mortgages are not subject to the same scrutiny. If you can put down a 25% deposit, have a regular income or savings, and pass some basic checks most lenders will compete for business – right now Virgin Money are offering 2.99% fixed for 3 years.

Next week, in Part 2, I’ll share my findings which offers further insights into why young people aren’t buying property anymore – and the reasons are probably not what you’re thinking!

In the meantime please share your thoughts. Why do you think young people aren’t buying property anymore? Is buy to let immoral?  Add your comments below or email Alternatively give me ring on 01206 862288 to discuss any aspect of the Colchester property market.

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