House prices have risen rapidly for more than ten years and it is natural to wonder, as prices falter in the US, if this can last.

Buy-to-let is probably the weakest link in the market. Some bulk landlords rely on the rising equity in a portfolio of properties to build up a credit pyramid allowing them to buy more properties. Most property speculators probably think of housing as much safer than shares. They reassure themselves, like all speculators, with the thought that although prices are very high, they will continue to rise.

Perhaps they will, but multiple buy-to-let holdings create potential for instability. If people with property portfolios feel that prices are not rising fast enough to cover their costs, they are likely to think of selling, perhaps on a scale large enough to set off a bear market in housing. They do not have the inertia of owner-occupiers who enjoy the benefit of living in a house whatever its price is doing.

What does this mean for house-owners? Not that there will be a crash but that anyone with a large mortgage, especially for buy-to-let, is taking a big risk. At least they are supporting the Government's policy of promoting risk-taking.

Director, National Institute of Economic and Social Research

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