Again banks are focusing mortgage lending on the buy to let market.
This lending to investors is often secured in part on some equity in their own personal property or other assets.
This enables buy-to-let investors to out bid first time buyers in the market place causing increases in property prices because bankers control the lending terms, and rent is often subsidise by the tax payer via housing benefit.
The buy-to-let investor then uses the increase in value as equity to buy the next property etc. There is nothing clever about this. It is again a question of greed by banks increasing their book value and the wrong allocation of scarce resources.
It also changes the make-up of areas in many of our cities particularly university ones like Bath and Leeds.
The first-time buyer has to compete with a buy-to-let investor who can offset the whole of the mortgage interest and other deductible expenses from the property income.
There have been reports that some buy-to-let investors have clubbed together to buy more that one property at discount prices.
First-time buyers on the same development have been unaware of this, and it has affected the first-time buyer’s equity and future sale price.
To address the balance any new government should seriously consider giving private buy-to-let tenants and subsequent tenants the right to buy their dwelling at the investor’s purchase price and refurbishment cost plus half the increase in value since the investor bought it.
This is fair because in most cases it is the rent paid that covers the investor’s mortgage by a substantial proportion.
This may stop landlords asking for high rents above enfranchisement mortgage cost.
There is clear precedence for this kind of approach given the Leasehold Reform Act 1967, and right to buy in the public sector. If the Government felt the 50:50 split in equity would deter buy-to-let investors then they could exempt both parties from Capital Gains Tax on the increase where a bona fides tenant exercised their right to buy.
If a tenant chose not to exercise their right to buy the 50 per cent equity would then pass to the next bona fides tenant.
It should be a criminal offence for the tenant to sell their equity to a future tenant or the landlord to charge a premium to a subsequent tenant.
Future tenants rent should be base on market evidence. If the landlord chose to sell the property when a tenant left, then Capital Gains Tax should apply together with the 50 per cent tenants share.
This 50 per cent share should apply where housing benefit has been paid towards the rent, because tenants in that category are unlikely to enfranchise.
This would then return the appropriate share of equity to the tax payer and reduce housing benefit. If the landlord or a close relative chose to occupy the property then an appropriate charge should be attached to the deeds and paid when the property was sold. If it was re-let then the former situation would be reinstated including any increase during the owner occupier period. The equity share ratio could be varied in terms of properties let before and after an appointed date in the legislation.
This approach should have the benefit of redressing the balance between buy-to-let investor and first time buyers. Give tenants a stake in the property market and appropriate return to investors and tax payers.