Buy-to-let investing to ‘fall most dramatically’ ...

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03 November 2017

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Buy-to-let investing to ‘fall most dramatically’ - Savills

The number of properties acquired by buy-to-let investors using a mortgage will plummet by more than a quarter over the next five years, according to Savills.

The estate agent forecasts that the number of mortgaged buy-to-let investors will ‘fall most dramatically’ by 27% from the exiting 75,000 a year to just 55,000 by the end of 2022 as tighter mortgage regulations, increased stamp duty charges and the phasing out of mortgage interest relief combine to restrict buy-to-let investor activity.

But while the phasing out of mortgage interest relief will deter many investors looking to take out a mortgage, Savills predicts that purchases by cash buyers will rise by 6%, with many investors increasingly looking to areas in northern England, where yields are typically higher.

“We have seen the earliest signs that some mortgaged buy to let investors may be selling stock,” said Lucian Cook, Savills head of residential research.

“Those entering the market will be looking very carefully at yields and that will put the spotlight on urban markets outside the capital,” he added.

As far as rental values are concerned, Savills predict that rents will rise in line with incomes, with rental growth likely to exceed house price growth in London.

The market in the capital has had to accommodate a glut of stock after investors scrambled to buy before the 3% stamp duty surcharge on additional homes came into effect on 1 April 2016. Asking rents fell 3.2% in the year to June 2017, compared to a 1.9% rise across England and Wales.

Rents in London have now stabilised. Compound growth of 17% is projected from 2018-2022, in line with wage growth but ahead of inflation.

Withdrawal of mortgage interest tax relief will push investors from London to higher yielding regional locations. Increased rental supply there will dampen potential rental growth beyond the capital.

Lawrence Bowles, Savills research analyst, said: “The rental outlook is strongest in regional cities that attract employees from high value sectors such as professional services, technology, and finance.”

Forecasts for mainstream rents:

	2017	2018	2019	2020	2021	2022	5 year 2018-2022
UK	0.0%	2.5%	2.5%	3.0%	3.5%	3.5%	15.5%
London	-3.0%	3.0%	3.0%	3.5%	3.5%	3.0%	17.0%
UK excl London	2.0%	2.0%	2.0%	3.0%	3.5%	3.5%	15.0%
Wages	2.0%	3.0%	3.0%	3.0%	3.5%	3.5%	17.0%
CPI	3.0%	2.0%	1.5%	2.0%	2.0%	2.0%	9.5%

Source: Savills research, Oxford Economics

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