SPECIAL FEATURE: The Paragon Great Buy-to-let Debate

The topics covered the issues of lending, tenant protection and market predictions.

The BBC Question Time-style event was chaired by Wriglesworth’s chief executive John Wriglesworth. The panel included John Heron, managing director, Paragon Mortgages; Valerie Bannister, national property director at Your Move and president elect of ARLA; Alan Ward, chairman of the Residential Landlords Association; David Whittaker, managing director of Mortgages for Business and Sebastian O’Kelly, director of The Leasehold Knowledge Partnership.

John Heron said he expected to see continued growth in buy-to-let mortgage lending in 2014, at a similar level to 2013. He pointed out, following the sharp drop in lending between 2007 and 2009, that the level of lending in 2013 only brings the market back to 2003 levels. Renting is now the only growing form of tenure.

David Whittaker argued that there isn’t the technical capacity to continue the 32% of growth reported by the Council of Mortgage Lenders, predicting instead growth of 25%. He also expressed the view that rents are reaching a glass ceiling and will only rise with inflation. Capital values will continue to rise however, which will see yields fall.

“Landlords would agree they have had a good run but they won’t get the same level of growth next year”, he added.

Alan Ward meanwhile said net return is only 1% for landlords when “sweat equity” is accounted for and is nowhere near the level of rises reported in the media. He said it would also be a mistake to assume the market in London is representative of the market in the rest of the UK.

There was a unanimous opinion from an audience poll that rents would rise, but by less than 5%. Around 20% said that house prices would rise by more than 5%, reinforcing Whittaker’s view.


Audience member Jeremy Leaf offered the opinion that rents are likely to stay stable. In recent years, they’ve been pushed too high and too fast. Resistance to rises from tenants has made landlords more concerned about the quality of the product they are offering.

John Heron pointed to the long and poor record of Government intervention in the housing market pre the late 1980s. Since then successive governments have followed broadly neutral housing policies. He added: “Looking across at the international comparisons, the most successful economies have a larger, healthier and more vibrant private rented sector.”

While Sebastian O’Kelly did not believe that the Government should tinker with the rental sector, he argued that first time buyers are losing out. “We should have restrictions to stop the wealthy middle classes from hoovering up the properties from potential first time buyers as buy-to-lets.” However, the problem of affordability shouldn’t just be placed on landlords, “should London be a refuge for international kleptomaniacs? Residential property shouldn't be an international asset class”.

Valerie Bannister observed that the private rental sector provides flexibility and the mobility of the workforce relies on the ability of workers to move around freely. She added, investing in the quality of the private rented sector and increasing competition will naturally control rental prices without the need for Governmental rent control.


Matthew Wyles, director of Castle Trust, spoke from the floor arguing that, “private landlords are a soft target for the populist vote”.

For him the fundamental problem is the shortage of property, as people are living for longer, there is a greater need for supply.

Nick Leeming of Spark Energy concluded: “With ONS figures out this morning showing 18% of households are now living in the private rented sector, the market is performing well.”

Alan Ward highlighted that most tenants across the UK are happy with their landlord, saying “for every single complaint Shelter gets, another 99 tenants are happy” this being only slightly more conservative than the 83% majority of satisfied tenants cited in the English Housing Survey. The answer must lie in better enforcement by councils of existing rules, rather than in creating new regulations licensing schemes.


Ward did suggest one innovation by asking households about the tenure of their property when collecting council tax. He suggested this would be much more effective at finding the “bad guys” than registration schemes such as Newham Council’s, where it is estimated 20% of landlords are still unregistered. In spite of this remaining gap, Valerie Bannister revealed that Newham Council have raised significant funds from their local landlord register – £6m over the course of 2013.

Valerie Bannister also highlighted that Newham’s scheme was originally designed to be a temporary “correction” but that this may not turn out to be the case.

David Whittaker also thought this sort of plan could be very susceptible to “mission creep”, and preferred a system where central government would set the rules for any register with any cost to landlords dependent on local rents rather than set across the board.

The panel generally agreed that rent controls would not achieve their stated aims.

John Heron highlighted how rent controls in the 20th century “halved the size of the private rented sector between 1971 and 1991” without owner-occupancy rates taking up the slack.

Sebastian O’Kelly agreed with this particular approach but reiterated his desire to “squeeze this sector” harder, in favour of encouraging more homeownership.

Bannister added that to reintroduce rent controls would distort the market, have an impact on the Treasury and would impact adversely on Buy-To-Let investment.


Valerie Bannister suggested that a step in the right direction is for letting agents to be part of a mandatory redress scheme, even though this does not go quite as far as the Ombudsman scheme that regulates estate agents.

She said: “If you regulate or license letting agents you will resolve and address many of the problems without a code of practice.” However, she added that any regulation will come at a cost and it is the few rogues out there that give the rest of the industry a poor name.

Sebastian O’Kelly pointed out that while regulatory schemes may solve issues for disputes under £1,000, special attention needs to be given to those letting agents who have control over millions of pounds.

John Heron argued that there are “too many examples of tenants and landlords being ripped off” and that statutory regulation is the answer.

However, David Whittaker pointed out the need for caution in regulation because any cost will ultimately be passed down the chain to the tenant.

Alan Ward was also in favour of regulation, pointing out that it is utterly illogical for estate agents to need a licence when they handle money but that lettings agents can seemingly do as they like.

John Heron noted that lenders are still rebuilding from the fallout from the financial crisis and there could be some justification for a modest relaxation of lending criteria, particularly loan-to-value limits.

He believes that the current buy-to-let market is sustainable but also emphasised the need for sensible and robust controls surrounding affordability.

On this front, John Heron also expressed disappointment that some lenders still base affordability checks on the initial rate when the loan is taken out. He noted therefore that there are still risks from less experienced lenders.


In terms of a prohibition on tenancies for those receiving benefit payments, Heron said that there should be no such restrictions and lenders may be failing in their social responsibilities if they were to impose such constrains. He also noted there could be a case to extend assured short-hold tenancies beyond 12 months. But he believes at this stage there is not sufficient evidence to persuade lenders to change their criteria.

David Whittaker suggested that for those receiving housing benefits, the social responsibility by lenders must be matched by a similar degree of responsibility on the part of landlords.

He noted that although there is demand for long term tenancies, the fact that tenants have the right to renew leases means that there is less need for longer fixed terms. However, he believes that on the whole there needs to be greater understanding or education about longer term tenancies in general.


David Whittaker raised the issue of landlord demand, highlighting that while there should be a healthy demand for longer terms product, 61% of market products ends up as two year rates.

Valerie Bannister commented that landlords need choice too, as “fluctuating interest rates affect landlords’ long-term planning; they need stability in their yields and returns”.

It was discussed that the difficulty delivering 10-year or longer term fixes is that while they offer landlords certainty, there is a premium to pay for addressing volatility in financial markets, and correspondingly they don’t always represent the best value for the landlord.


There was general consensus in the room that longer term products are not well enough understood or valued. Heron rounded up that

“critical to facilitating landlord product choice is clear information and transparent products”, and Whittaker agreed that the key is getting the right mix of products for different rental portfolios.

John Heron made the point that “first time buyers are the darlings of policy makers and politicians” but the notion that landlords are pricing them out of the market is not supported by the facts. He stated that last year there were four times as many first-time buyer purchases as landlord purchases. The real issue for the housing market remains the acute undersupply of homes.

Alan Ward pointed out that landlords ought not apologise for providing essential homes. He said, “In the UK there is prejudice toward renting which is a legacy of the Thatcher era. In Germany only 46% of people own their own homes.” Ward argued that the private rented sector should be first choice and not second best.