Renting, buying, bank regulation and the Govt.

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Renting, buying, bank regulation and the Govt.

Postby Wizard » January 13th, 2017, 9:47 am

An item on BBC Breakfast has just really annoyed me, seems to typify the decline in the quality of the BBC.

Shock! Horror! They start the piece by stating that a recent report has said that renting costs more than buying and that in some cases you could buy a house for less than you need to pay in rent for it. I suspect the report may not have been this simplistic, but that is how the BBC reporter played it back. There follows a debate in which a chap from Rightmove makes some sound points:
- rents are driven by supply and demand
- supply has contracted (outside London) and the forecast for the near future is for further contraction
- additional 3% stamp duty is deterring landlords from buying additional properties
- upcoming changes in way buy-to-lets are taxed has already resulted in some landlords selling properties

What I don't get is why the reporter from the BBC could not make a simple connection. If the mortgage payments on any particular property were more than the market rent for the same property how many landlords would be in the market, they are after all not in it for charitable reasons.

So if monthly rent vs mortgage is not the driver for renting what is? Again, no effort by our man from the Beeb to try to get an answer, indeed not sure he even got to that question even though some of the answers from guests were taking him that way.

It seems to me that people rent for a number of reasons, but very broadly any of those reasons can end up being grouped in to two macro categories, 1. Personal choice (e.g. want to get to know a new area before buying) or 2. Unable to. In that second category the received wisdom seems to be that a lot of the reason is financial. One point mentioned in the BBC piece was required deposits which apparently across the whole UK average now avergae £30k, this of course is the converse of / result of the loan to value limits applied by lenders. The second point is the ability to secure a sufficiently large mortgage due to stress testing on repayments vs income.

When a landlord lets a property to a new tenant they want to know that the tenant can afford the rent, maybe with a bit of a safety margin. But when a bank looks at a mortgage they want a huge safety margin. There was mention in the BBC piece about "stress testing to 5.5%", I'm guessing this means testing a borrower can still repay if BoE base rates hit 5.5%. That is a massive change from the current level and no doubt will result in massively higher repayments. So many renters in macro category 2. can't become buyers because of very tough lending criteria by banks.

But of course much of the driver behind those lending criteria comes from the regulators wanting to ensure that banks never take on risky loans so that they can never need to be bailed out by the tax payer again and / or be allowed to go to the wall with whatever resulting impact on the economy. This regulation is driven by government policy.

So my conclusion is that one arm of Govt. is creating the conditions that mean many people are unable to buy a home when they want to, whilst another part of Govt. is trying to convince the public that the cause is an army of evil private landlords who buy up all the properties preventing people getting on the first rung of the property ladder.

Now a BBC piece explaining that would be much more interesting to see.

Of course others may disagree and / or point out flaws in my logic.


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Re: Renting, buying, bank regulation and the Govt.

Postby Raptor » January 13th, 2017, 2:58 pm

Terry 3 groups.

3. Own a home somewhere else and on contract or assignment elsewhere. Usually company pay the rental or give you an allowance to pay the rent.

I have been in that situation a few times. Shortest was 6 months and longest was 3 years. OK all of them were abroad but still applies I suppose.

My daughter is renting with her boyfriend. She owns a property somewhere else but wanted to "live" with boyfriend to make sure that they were compatible before buying a house together. She has twice before done it the other way round to find that "living" with someone really showed the "real" person and then has to go through the process of being brought out. There are many reasons why people rent though, one of my neighbours rents and does it as a choice (wouldn't be mine).

My sister has just become a "buy-to-let" landllord and she is in the business of managing properties for a nationwide company as a job, so it must still be worth it.


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Re: Renting, buying, bank regulation and the Govt.

Postby Alaric » January 13th, 2017, 5:49 pm

Raptor wrote: There are many reasons why people rent though, one of my neighbours rents and does it as a choice (wouldn't be mine).

There probably aren't many people wealthy enough to do this, but suppose you had enough personal wealth to buy a house outright, but decided to rent instead and used the returns on your investments to finance this. It would be a sort of gearing, an implicit borrow to invest. There's a presumption that you can do better in shares or whatever than in outright house ownership.

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