16th
Jun 2017
The Buy-to-let market has for a long period yielded high mega double-digit returns for all investors, and has consistently proven to beat all major asset classes in the last five years. New research highlights the need for the sector's investors to make changes within their strategy, because of the anti-landlord stance taken by the government with its new measures that started last year.
The CEBR (Centre for Economics and Business Research) carried out research into the BTL market trends on behalf of a UK retail and commercial bank. It appreciates that the tax changes will significantly bite into the returns that the BTL market has previously secured for investors, but landlords and investors will still be able to glean relatively good returns, albeit not the previous 5% average but should be around 3.5% by 2027.
The bank forecasts that landlords should be able to look forward to increased demand from tenants and that private rented residences will rise from 21% (2016) to 28% by the end of 2027. The biggest gains for investors will be from profitable growth and it predicts the UK home average price will have increased 59% by 2027 against 2016's level.
There is a concern for the London and South East dominance of the market, where between them their buy-to-let properties account for virtually 40% of residences. The migrant community demand is a major share of the rental market in the city and whether the looming Brexit outcome will have an effect on rental process, as many may decide to leave the UK.
Stephen Johnson, deputy CEO of the bank and managing director of its commercial mortgage arm, said: “As the spotlight continues to shine on buy-to-let, the landlord community will need to adjust to lower levels of available debt and will therefore require more equity, or have to grow at a slower pace than was previously possible.
“This will mean a period of adjustment for landlords who will have to consider how the changed environment affects them individually.
“As with all market shifts there will be winners and losers, but it is most likely that professional landlords with equity and scale from larger portfolios will be better positioned to weather the changes.
“Buy-to-let has produced excellent total returns for property investors in the past, and notwithstanding some of the new challenges, the fundamentals still remain compelling for those who adapt to the new environment.”
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