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Treasury saw buy-to-let threat to first-time buyers

The Guardian Newspaper via Google

Treasury saw buy-to-let threat to first-time buyers

• Danger of market overheating missed, say campaigners
• Gordon Brown knew market was distorted but failed to act


Campaign group PricedOut has attacked tax-breaks for buy-to-let investors. Photograph: Geray Sweeney/Corbis

The Treasury acknowledged privately as early as 2004 that a burgeoning buy-to-let market could be crowding out first-time buyers, according to a government report released by campaigners who lambast the authorities for allowing the landlord boom to continue regardless. The admission from the Treasury under Gordon Brown's reign as chancellor runs counter to previous government rhetoric on the relationship – or lack thereof – between a rise in buy-to-let activity and a shortage of affordable homes for first-time buyers, according to the PricedOut group.

The campaigners received the Treasury briefing paper following a freedom of information request. The report was drafted in response to a request by former prime minister Tony Blair in 2004 after he had read a newspaper article on the prospects of a housing market collapse.

In it, the Treasury concedes that the decline in first-time buyers (FTBs) taking out mortgages was a "notable feature of the housing market" with the proportion of loans to such buyers falling to an all-time low of 28% by the end of 2003, well below its post-1993 average of 46%.

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"However, the falling numbers of new entrants has not had the expected cooling effect on the housing market as the growing trend of buy-to-let may have taken up much of the slack," the report continues.

Noting "significant growth" in the buy-to-let mortgage sector, it goes on to conclude: "The increase in activity may have the effect of crowding out FTBs as, typically, rental properties and those being sought by FTBs often have the same characteristics."

The report also cites other pressures on first-time buyers such as the size of deposits, high demand for housing and rising interest rates.

PricedOut, which recently clashed with the Treasury over proposed tax breaks for buy-to-let investors, said the report was evidence of the department's complacency and failure to spot "clear dangers from an overheating housing market"."This document shows that the government knew that first-time buyers were being priced out of the housing market by the buy-to-let sector – but were happy to do nothing to stop this happening," says PricedOut spokesman William Griffith.

"This shows a government more than happy to benefit from the feel good effect of rising house prices yet unconcerned about reigning in the negative social consequences. Government public statements to be helping first-time buyers were in private being undermined by the government's failure to act on its own analysis."

The Treasury, which is not able to comment on PricedOut's accusations under election period purdah rules, has flagged up a number of measures over the past year to help first-time buyers. In his budget last month, Alistair Darling announced a two-year stamp duty exemption for first-time buyers purchasing a home costing less than £250,000.

But at the same time there has been support for buy-to-let investors, rolex air king replica watches with a Treasury consultation paper in February including plans to boost the supply of private rented housing. One key proposal was for professional investors to pay stamp duty separately on each home, even when they buy a large portfolio of properties, reducing their total bill.While the plan was intended to increase housing supply, PricedOut argued that instead, buy-to-let investment had created a net loss in the supply of houses available to first-time buyers and other owner-occupiers