Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.
Display:
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
[ Parent ]

Others have rated this comment as follows:

Display:

Top Diaries

Sisyphean syphilis

by marco - Mar 26
21 comments

Movies

by DoDo - Mar 7
21 comments

Two ruins

by DoDo - Mar 14
7 comments

Greek MP Lapavitsas on Grexit

by Upstate NY - Mar 15
294 comments

Recent Diaries

Sisyphean syphilis

by marco - Mar 26
21 comments

Greek MP Lapavitsas on Grexit

by Upstate NY - Mar 15
294 comments

Two ruins

by DoDo - Mar 14
7 comments

Hello

by alexc - Mar 12
6 comments

Movies

by DoDo - Mar 7
21 comments

The new Greek government program

by talos - Feb 23
171 comments

More Diaries...

Occasional Series