How Much Did BTL Raise House Prices?

HAMISH_MCTAVISH

Well, it seems there is a detailed study of the exact amount of the rise in house prices over tha lst couple of decades that was attributable to BTL, available here.....

http://www.communities.gov.uk/documents/507390/pdf/684943.pdf

And the answer? Despite all the frothers protestations to the contrary, it was not a lot....

In this paper the impact of Buy-to-Let on house prices is investigated. An econometric model was used to determine the impact of gross BTL lending on house prices by comparing actual house prices to an estimate of what house prices would have been had there been no BTL lending.

Between 1996 Q3 and 2007 Q2 the overall impact of BTL on house prices was relatively modest and illustrates the point made by others that movement’s in house prices are largely determined by fundamental economic and demographic factors (Meen etc).

The model discussed in this paper attributes much of the variation in house prices to mortgage interest rates, changes in disposable income, and the stock of housing to the number of households, and the availability of credit. For instance, since 1996 Q3 house prices increased in real terms by 150 per cent and, even without the estimated effect of BTL, they would still have been expected to increase by more than 130 per cent. It would therefore be wrong to say that BTL has been responsible for all of the growth in house prices over the last decade but it has played a part, as other have argued (e.g. NHF, 2007; Sprigings et al, 2006).

In term of affordability it is an open question as to whether a 7 per cent increase in house prices in 2007 Q2 represents a significant additional cost. For example, the monthly mortgage repayment on a property priced at around £183,000 in 2007 Q2 would be around £1,190, assuming a 100 per cent mortgage at an interest rate of 6 per cent over 25 years.

The equivalent monthly repayment for a property priced at £169,000 (the models estimated house price for this period had there been no BTL lending), would be £1,100. A difference of £90 per month in mortgage repayments could be significant for some but not for others. However, if one assumes that BTL investment has provided no wider benefits then the additional amount it adds to house prices and households mortgage repayments is undesirable because it has reduced the opportunity for home ownership, particularly for those on lower incomes.

There is some evidence to suggest that BTL has increased the size of the private rental (PRS). For example, BTL mortgages were estimated to make-up over a quarter (28 per cent) of the whole private rented stock in 2006, rising from less than 1 per cent in 1996 (see Figure 5). However, one cannot necessarily conclude from this data that the PRS would have declined from its pre-BTL level had BTL not existed. This is because the statistics mask the fact that some investors will have taken out BTL mortgages on rental stock that they already owned, once the BTL product became available.

Only around 7% of the price of a house was attributable to increases caused by BTL.

The majority of the price rise was caused by underlying economic and demographic factors. Not BTL.

boomerangs

HAMISH_MCTAVISH wrote: »

And the answer? Despite all the frothers protestations to the contrary, it was not a lot....



Only around 7% of the price of a house was attributable to increases caused by BTL.

The majority of the price rise was caused by underlying economic and demographic factors. Not BTL.

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Graham_Devon

Not knocking you Hamish. But I will knock the article.

It's based on estimates, assumptions and "not neccesarilys".

None of it is fact, apart from where they list what has actually happened, i.e. house prices went up.

Most of the rises were based on speculation.

stueyhants

Are these calculations just based on the number of BTL properties (defined by the number of BTL mortgages) ? How many other properties should be considered BTL but are not because the they only have residental mortgages ?
I'm guessing this would have some impact but not a very large impact.

Also, why are they using the average house price when a typical BTL property is not the 'average' property. If you look at the drop in prices in flats (typical BTL) there has been a bigger drop compared to the 'average' property, thus suggesting they were inflated by more than just 7%. Flats in some areas are significantly down if you count the repossessions which are hidden from the official stats.

HAMISH_MCTAVISH

stueyhants wrote: »

Are these calculations just based on the number of BTL properties (defined by the number of BTL mortgages) ? How many other properties should be considered BTL but are not because the they only have residental mortgages ?
I'm guessing this would have some impact but not a very large impact.

Also, why are they using the average house price when a typical BTL property is not the 'average' property. If you look at the drop in prices in flats (typical BTL) there has been a bigger drop compared to the 'average' property, thus suggesting they were inflated by more than just 7%. Flats in some areas are significantly down if you count the repossessions which are hidden from the official stats.

If you read the source paper, I'm sure most of your questions will be answered.

purch

If you read the source paper

C'mon..........this is the House Prices, Economy & Recession board :eek:

nearlynew

The question in the OP could also be reversed.

How much did rising prices increase BTL?.

When you consider that most people who got into BTL used MEW to raise a deposit and that in itself required rising prices.

For a while, "equity" replaced real money.
But as we should all know by now..............


.............Debt is not wealth


Never has been never will be.

HAMISH_MCTAVISH

purch wrote: »

C'mon..........this is the House Prices, Economy & Recession board :eek:

:rotfl:

Ah, sorry, I forgot. Far better to stick to fallacious soundbites lifted from hpc.co.uk.:D

nickj_2

surely it was a vicious circle
people could see the huge "potential" growth of house prices
decided to get on the btl bandwagon and along with other factors increased the number of people chasing after a decreasing number of houses for sale-

HAMISH_MCTAVISH

Obviously worth bumping this thread given the anount of BTL bashing going on today.

They did have an impact, but 7% is paltry.....

The main factor is simply a lack of housing for the increasing numbers of people and households.

brit1234

HAMISH_MCTAVISH wrote: »

The main factor is simply a lack of housing for the increasing numbers of people and households.

Actually I think you will find the main reason was far to low interest rates, securitisation over using savings, mass fraud and iressesponsible lending.

Yes there was a shortage of supply with buy to letters outcompeting ftbs with their tax addvantages esculating up prices higher through all types.

End result is we have a mass unsustainable housing bubble which is starting to collapse with all interest rates going up and government buying of dodgy bank debt ending this year.

Remeber the key factor on house prices is lending criteria and all this genral supply and demand stuff is just a smoke screen by vested interest to try and keep prices high.