Buy-to-lets could harm house prices

24 October 2007
Advisor to Gordon Brown and member of the Bank of England's Monetary Policy Committee, Kate Barker, says that although she does not foresee a serious slowdown for the economy, the housing market is in a precarious state.

Ms Barker claims that the housing market is "vulnerable to a major change in expectations about future prices" and that it appears to be slowing its pace.

And the buy-to-let sector could be at the heart of this potential property problem. She describes buy-to-lets as a possible "source of weakness" in terms of overall property prices in the near future.

Interest rate hikes have hit the buy-to-let market reasonably hard, and with rents remaining at the same levels and a potential downturn in property prices, there could be a decline in demand for buy-to-let properties, which currently account for 12 per cent of total mortgage lending.

And, even if this 12 per cent does not decide to sell up, Ms Barker says the decline in demand “could well dampen the market".

Hinting that there could be a correction in sight, she says that current price levels are possibly at an unsustainable high compared with other market fundamentals, such as low rates, a stable economy and supply constraints.

Ms Barker added that a slump is not her “central expectation”, but her comments are likely to cause concern as the Bank of England has more or less been holding back on any comments pertaining to the housing market.

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