Building societies began to provide
homes for members; now they help landlords to snap up properties traditionally
bought by first-time buyers.
This
month, a reader in Yorkshire submitted the following question to The Guardian's Personal
Effects column:
"I
wish to avoid my investments being used to support the buy-to-let racket. Is
there a building society that only loans for owner occupation rather than
funding landlords' investments? I have helped one daughter avoid renting and
will do the same for her sister, but would like to ensure I am not assisting
buy-to-let in general."
Building
societies date back to the "Midlands Enlightenment" when, in 1775,
some citizens of Birmingham, then a fast-growing metalworking town, met at the
Golden Cross Inn and agreed to pool their money to build houses for members.
The
explosion in house building in the 1920s and 1930s was largely financed by the
building societies (Abbey in particular) and until the 1990s they were at the
heart of the extraordinary rise in home ownership.
But
are they now, as our reader from Yorkshire worries, turning their back on
buyers in favour of landlords?
Rather than put the question to
readers, I decided to ask the Building Societies Association. It told me
that virtually all its members offer buy-to-let mortgages. "Building
societies were originally established to house local communities, and the
sector still has a keen interest in supporting communities which offer a choice
of different forms of housing – for some people, renting is a choice rather
than a necessity," said a spokeswoman.
Funny
thing, that word "choice". When a spokesperson in favour of
buy-to-let says it's about "choice", I ask them if they rent or own
their home. I've never yet met one who doesn't own. "Choice", it
seems, is for other people, not them. The reality is that only a few people
choose to rent over the long term. The rest are more accurately described as
"trapped".
Building
societies are mutual organisations, controlled by their members. So it
surprises me that there have been no resolutions at society annual meetings
asking for a society to stop favouring landlords. The BSA told me: "We are
not aware of any critical resolutions on this topic."
It's not difficult to understand why
building societies are so keen to offer buy-to-let: loans to landlords usually
earn the society a higher fee than loans to first-time buyers and are regarded as lower risk.
The BSA says one in three of its
members' loans last year were to first-time buyers, and that one type of
lending (buy-to-let) is not at the expense of the other (first-time buyer). But
can we be sure of that? Landlords typically buy the sort of property –
be it one- and two-bed flats in London or terraced houses in other towns and
cities – that used to be the first rung in the ladder for would-be
owner-occupiers.
Because
Britain builds so catastrophically few houses, this is arguably a zero-sum
game. When a loan is granted to a landlord, it effectively means yet another
property is removed from owner occupation. It doesn't help that buy-to-let
remains unregulated, with loans calculated on a cheap interest-only basis (with
tax benefits thrown in), while today's first-time buyers have the full force of
post-financial crisis regulation dumped on them.
Neither
does it help that our pension system remains so incapable of providing security
for savers. It's entirely understandable, financially speaking, that someone
should want to invest in a property for their pension rather than cash ISAs –
now paying a pathetic 1.7% average interest. But the rational self-interest of
investors is sentencing young families to a life of precarious renting.
Perhaps
buy-to-let should be restricted to new-build properties only. Money pouring
into new build could help to stem price rises while boosting the construction
industry. Is this the way to turn buy-to-let investors into heroes rather than
villains?
