As savings interests continue their long trend of languishing at rock-bottom levels, ever more savers are being drawn to alternative ways to earn returns from the money they have put aside. Investments are increasingly popular, and buy-to-let property investment is prominently on the rise. Now, however, the Bank of England has raised concerns about the boom this has created, suggesting potential investors may want to think things over a bit more carefully before deciding whether to put their money into property or not.
Property generally has a reputation as a comparatively safe investment (all investments being inherently risky to some degree). As such, it has proved an attractive prospect to those whose savings are sufficient to afford the steep initial outlay, usually with help from a buy-to-let mortgage. Becoming a landlord has been an especially popular prospect recently for retirees looking for alternative, potentially more profitable ways to make use of their pension pots. However, many savers who can afford to invest in property have been doing so as a way to beat savings accounts, and some of those who can’t afford to buy an investment property by themselves have been making use of crowdfunded property investment schemes allowing them to buy a stake in a buy-to-let investment for as little as £500.
However, the relatively sudden surge in popularity of buy-to-let investment – especially following the introduction of new freedoms giving people more choice in making use of their pension pots – has created something of a boom. It is this that the Bank of England is now concerned about, following recent analysis by its Financial Stability Committee (FPC).
The Banks concerns revolve in particular around the increase in lending in the buy-to-let sector that has accompanied its growing popularity. As many new landlords require a mortgage to help them purchase their investment property, an increase in the number of people becoming landlords has naturally meant a greater number of mortgages being taken out. Lending in the buy-to-let sector has grown 40% since 2008, the FPC said. This compares to an increase in mortgages for owner-occupiers of only 2%.
This has the potential, the FPC warned, to “amplify” a boom-and-bust cycle within the property market. It could be that, as a result of heavier lending, a stronger property boom is followed by a more dramatic bust. This could be bad news for those who have invested in properties. It could also, the FPC says, “pose risks to broader financial stability, both through credit risk to banks and the amplification of movements in the housing market.”