Buy-to-let  

Buy-to-let remains viable due to house price growth

Buy-to-let remains viable due to house price growth

Buy-to-let (BTL) is likely to remain a viable investment as robust house price growth is helping to offset a drop in yields, research by Shawbrook Bank suggested.

A report from Shawbrook Bank, undertaken by the Centre for Economics and Business Research (CEBR), predicted professional landlords will continue to enjoy good investment opportunities despite a decline in yields from an average of 5 per cent in 2016 to around 3.5 per cent by 2027.

Landlords stand to benefit from a surge in property values, with the average cost of a UK home set to reach £336,845 by 2027 - 59.7 per cent more than in 2016.

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As a result, demand for private rental accommodation will remain strong, with the share of privately rented dwellings predicted to increase from 21 per cent in 2016 to 28 per cent in 2027.

Commercial landlords will also increase their market share as recent tax changes for mortgage interest payments only affect private landlords.

However, the report also warns of potential problems for the market in London and the south east, where the combined share of the buy-to-let investment market is nearly 40 per cent.

With demand from the international migrant community helping to underpin the popularity of renting in the capital, the report raises concerns about whether continued increases in prices and rents are sustainable - particularly with Brexit on the horizon.

Stephen Johnson, deputy chief executive and managing director for commercial mortgages at Shawbrook Bank, 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."

Simon Webster, managing director at Kent-based Facts and Figures Financial Planners, said: “For commercially aware landlords who are going to manage their properties carefully, buy-to-let properties are probably attractive because prices look like they will continue to go up.

“But it involves a lot of work, hassle and stress, and if you are not commercially aware and don’t have someone sensible to advise you, it is a dangerous market for the inexperienced.

“The demand for London property may be impacted by Brexit, but I think in the medium term London still remains attractive and may continue to outperform the rest of the country.”

simon.allin@ft.com