Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Look at it from the perspective of the bank that lends to the buy-to-letter or the buy-to-owner.

The BTO will be paying principal and interest out of their income.

The BTL will be paying out of their income plus the income of the expected tenant.

Therefore the bank will lend more to the BTL than to the BTO. This means BTL drives BTO out of the purchase market.

The problem is that the BTL's business plan is predicated on a certain demand for rental. In theory the BTO being shut out of the property market will fall back on the rental market. Except the BTO already has a place to live. So what happens is not that the BTO is forced to rent from the BTL. The BTO stays put and the BTL doesn't have an additional potential renter.

So eventually the BTL's business plan will fail, with losses for both the BTL and the bank.

The whole thing is a bubble and has to stop.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 04:49:35 AM EST
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