Buy-to-let follies

If you read those personal financial profiles that the posher papers like to run on the weekends, you see one theme repeated over and over again. Your average middle-class Brit distrusts not only pensions but also just about all traditional financial assets, and is staking his/her hopes of a happy retirement almost entirely on the property market. In the old days -- say, up until the mid-1990s -- this meant downsizing from your family home, taking some cash out, once the kids had left. That doesn't work any more -- that thatched charmer in the Cotswolds now costs more than you can get for selling your suburban spread. So people for whom property is the only reliable asset have swarmed into the buy-to-let market.

There are a couple of indications this week that this trend is not only getting a bit silly, but may actually be starting to have a malign influence. First there was the story of a 102-year old gent arranging a 25-year, interest-only mortgage in order to buy a rental property. Then there was the report that the number of home-owning households in the UK has actually begun to slip, after rising steadily for many years.

These two things are linked. Lenders will always be happy to commit money to people who already have it, or who are in a position to provide security, even if they are well into their dotage. Those who already own a property can therefore buy another one without too much trouble. In contrast, the young couple with a modest income, small downpayment and limited credit history are likely to get shut out, particularly at a time when interest rates are rising and affordability is falling. By piling into the buy-to-let craze, the baby boomers are in effect trying to finance their own retirement by keeping a growing part of the next generation from getting a foothold in the housing market. This can't be socially desirable, but it's hard to see what will stop it until the property market goes into reverse. At that point the buy-to-let crowd will be the first to bail out.

One interesting sidebar to this: the Tory MP Michael Gove (a man who always seems to me to have been born middle-aged) has castigated the Government for allowing the housing market to become unaffordable for the young. Mr Gove is MP for somewhere called Walton Heath, and it's a fair bet that his constituents include a lot more buy-to-let investors than demoralised renters. Still, a big up to him for speaking out. This issue is not going to go away.