ronin - 3:47 pm on Dec 4, 2007 (gmt 0)

But people are still finding it extremely difficult to get on the housing market.

That's not surprising when buy-to-let landlords have bought up so many properties on the basis of favourable mortgage agreements which otherwise would have been bought by first-time-buyers.

Now that interest rates are up (increasing monthly mortgage expenditure) and house price growth is level (or dropping) so it can't compensate in capital gains for the shortfall between what the tenant pays the landlord in rent and what the landlord pays the mortgage lender, buy-to-let is no longer a profitable business model.

So lots of buy-to-letters are looking to offload some or many of their properties which will now return to the first-time-buyer marketplace.

Then we'll see if there are too few houses for first-time-buyers or if the houses they normally would have bought have simply been selling to buy-to-letters instead.

In any given market where units are either bought and taken out of circulation (in this case empty properties) or bought and rented out but not resold (buy-to-let properties), you'd expect to see the supply of available units for purchase to shrink.

That doesn't mean there aren't enough units to go around - it just means that those couples or individuals who once would have bought are obliged to rent instead. When those BTL landlords renting out their units (and not selling them on) are continually in a position where they have the means from renting out those units to purchase more units (on more favourable terms!) and take them out of circulation too, of course the remaining units available for purchase become scarcer and their price goes up.

In this case the first-time-buyer property prices have gone up to the point (six to nine times average annual earnings!) where practically no first-time-buyer couple with a dual income can afford them.

That's why simultaneously, when first-time-buyers are finding it difficult to get on the housing ladder, sellers are also finding it difficult to persuade anyone to accept their asking price which they have been informed by estate agents is the going rate. (The going rate but nobody can afford it? How is that any sort of going rate?)

We cannot persist in a situation where some people own 4-6 (or 15!) properties and many other would-be home-owners have none. When the buy-to-letters decide to offload because the interest rates are hurting too much and realise they have no-one to sell to, reality is going to finally hit home: it's going to be a long drop.

And here for everyone's delight and amusement (yes, we're finally going to be able to buy our own homes!) is the headline from today's ThisIsLondon:

House prices 'will plummet by 10pc over the next year', says banking chief economist The housing market is on the brink of a record slump, one of the country's leading experts warned. Morgan Stanley's chief UK economist David Miles warned that prices will drop 10 per cent next year. That would be the biggest full-year decline since records began in 1969. Source: thisislondon.co.uk [thisislondon.co.uk]

Hurrah!

[edited by: encyclo at 11:06 am (utc) on Dec. 5, 2007]
[edit reason] fixed link [/edit]