Jeff Salway: Buy-to-let boom shows we haven’t learned

IT WAS six years ago this month that the credit crunch began in earnest, as markets froze and fear spread.

When the dust settled there was an acceptance that we had gotten too greedy, gorging on cheap credit and taking it for granted.

We’re still paying the price, yet remarkably it seems we’re now in danger of repeating some of the mistakes that contributed to the meltdown.

Part of the problem is the dangerous illusion that we’re nearly out of the woods in the wake of a few positive indicators. Mortgage lending reached a post-crunch high in the three months to the end of April, a level expected to be surpassed during the current quarter. First-time buyers are returning to the market and buy-to-let lending is flying, driven up by cheap mortgages, low cash returns and high demand for rental accommodation.

The weak UK economy is returning slowly to something resembling growth, markets continue to rally and even the bailed-out banks have posted profits.

After six dark years the hunger for better days is unsurprising. But the very talk of a recovery – as if the last six years were a blip – and the gleeful response to house price increases implies an expectation of a return to the pre-crunch norm.

For evidence that the lessons aren’t being learned we need look no further than the aforementioned housing market, in particular the buy-to-let boom being fuelled by taxpayer support for the very banks that helped cause the crunch.

Meanwhile, any chance of a shift from a culture of debt-fuelled spending to one based on savings was dashed when the Bank of England signalled earlier this month that interest rates would not rise for at least two more years.

If there’s another crisis – and the problems in the banking sector haven’t been fixed by a long way – the fallout doesn’t bear thinking about.

A huge proportion of households, far more than in 2007, are acutely vulnerable to the consequences of another credit-driven meltdown. House prices may be rising, but wages continue to stagnate, inflation eats into fixed incomes and the ones paying the price are the poorest households in society. While the fortunate eye up the buy-to-let market and wave goodbye to a recession they barely felt, more households fall prey to the payday lenders and sink deeper into financial hardship.

Household bills, property prices and personal debt levels in one direction; wages and disposable incomes in the other. It has the makings of a disaster and we may slowly be sleepwalking right into it.