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Don't blame house prices on buy to let.

THE belief that buy to let investors are pricing first-time buyers out of the housing market has been dismissed by a leading property expert.

Prof Michael Ball, from the University of Reading Business School, told the annual conference of the Association of Residential Lettings Agents that there was only one way to reduce house prices.

He said the answer was to build more houses that people actually wanted to live in and in places where they wanted to live.

Prof Ball said that buy to let has substantially improved housing market stability.

Without buy to let and a stable rental market, young households would be forced to enter owner-occupation earlier, at a more financially precarious time of their lives.

He added: "Buy to let has increased the size of the private rented sector and extended the alternatives to both owner occupation and social housing.

"It has also spread renting wider, to towns and suburbs that had little or no private renting before.

"It has assisted in the regeneration of inner city neighbourhoods and in some areas it has helped to revive the housing market."

As a result, Prof Ball said that it was not clear that house prices would have been lower without buy to let, as housing demand was still with us but supply was likely to have been less.

Turning to the effect of buy to let on tenants, Prof Ball said that it had sheltered many households from the full impact of house price rises, as renting was often a cheaper monthly money-outgoings option.

He said: "It enables households to build up their own equity and, although tenants do not share in capital gains directly, they do so through lower rents and lower risk.

"They can do this while living in good standard accommodation, as competition in the rental market is now greater. This appeals to young, mobile people in employment.

"Overwhelmingly, these are the client base of the buy to let landlord."

Prof Ball pointed out that more younger people rented rather than owned property compared to previous decades.

He said that this was due to changing lifestyles, employment patterns and affluence, as well as other financial circumstances, including the rising costs of equity requirements for house purchase.

Two-thirds of rented property is owned by private individuals. This is up from 50 per cent 10 years ago, when buy to let was initiated.

This change has occurred as corporate landlords have left the market but more individuals have wanted to invest in residential property.

"Without buy to let, the private rented sector would probably be much smaller.

The quitters would have exceeded new entrants," Prof Ball said.

Many of these new investor landlords have substantial equity in their rental properties as well as in their own homes and they work or have other sources of income. Many buy to let properties have no mortgages on them and many have loan-to value ratios well below mortgage lenders' cap limits.

Prof Ball said: "Landlords are generally very secure financially and this helps to explain the low default rates among buy to let borrowers."

Buy to let is now more than 10 years old, with over a million households living in buy to let properties.
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Title Annotation:Features
Publication:Coventry Evening Telegraph (England)
Date:Mar 6, 2007
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