Saturday 9 March 2013

The awful truth about buy to let lending

Faisal Islam, Channel 4's excellent economics editor, tweeted this morning
Judging by the number of retweets, this struck a chord with a lot of people, which is not surprising. Since hardly anybody is a buy to let (BTL) landlord but lots of people are suffering from high housing costs, the idea that BTL landlords are gobbling up all the extra mortgage lending and pushing everyone else out is very attractive.

But it's also wrong. The truth is, while lending to BTL increased by £2.6 billion between 2011 and 2012, lending to first time buyers also went up a lot, by £3.7 billion to be exact. So Faisal could just as easily have said that "ALL the increase in mortgage lending over 2012 was to first time buyers", though I imagine this wouldn't have had quite the same impact.

To explain, let's go the sources which Faisal helpfully tweeted:

There are two issues here, one of which is the a relatively minor problem of comparing CML data on BTL lending with Bank of England data on total lending. But the more important point is that BTL is just one component of gross mortgage lending, alongside lending to home buyers (first time buyers and home movers) and remortgaging. It's perfectly possible for lending to both BTL and home buyers to have risen by more than the total increase in mortgage lending, as long as lending for remortgaging falls. And that's exactly what happened in 2012.

The table below shows mortgage lending in 2011 and 2012 by category of buyer, based on CML's press releases on mainstream mortgage lending and BTL. Lending to first time buyers went up £3.7bn, to home movers £1.9bn and to BTL £2.3bn, but because remortgaging fell by £5.9bn the total only went up £2.3bn.

Value in £ millions of new mortgage lending in 2011 and 2012, by category
Re-mortgage  First time buyers Home movers Buy to let All home lending
2011 46,700 23,600 51,700 13,800 135,800
2012 40,800 27,300 53,600 16,400 138,100
% change -12.6% 15.7% 3.7% 18.8% 1.7%
£m change -5,900 3,700 1,900 2,600 2,300

Here's the same information in chart form, which I think puts the supposedly terrifying rise of buy to let into some perspective.

Saying that BTL accounted for all of the increase in mortgage lending is just as much of a fallacy as that tabloid trope of claiming that all the new jobs have gone to foreigners. Both of them are misleading, but they are also hard to kill off because they seem to identify a handy scapegoat for a more systemic problem.

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