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The BTL will be paying out of their income plus the income of the expected tenant."
He will also have greater expenses as he ALSO needs to pay for his place to live.
"This means BTL drives BTO out of the purchase market."
Which needs not be a bad thing where there are too many owner-occupied houses and not enough ones for rent.
"So eventually the BTL's business plan will fail, with losses for both the BTL and the bank. "
Yes, so what? They made some during the good times, why should they not be allowed to take losses at other times? Plus, well, shouldn't the bank then stop giving more money to the BTL as the business model may not hold?
"The whole thing is a bubble and has to stop."
Then address the bubble, but not the idea of buying to let. Banning buy-to-let, in the long run, means that there will be no rental market at all.
Now, I know why right wing politicians would see that as a good thing: it has been demonstrated that owning a house makes you much more likely to vote righ-wing. But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.
Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
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