The number of properties purchased by buy-to-let investors using a mortgage will plummet by more than a quarter over the next five years, predicts Savills.
The property firm forecasts that the number of mortgaged buy-to-let investors will “fall most dramatically” by 27%, from the current 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 tax relief combine to restrict buy-to-let investor activity.
But while the reduction in mortgage interest tax relief will deter many buy-to-let 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.
Lucian Cook, the Head of Residential Research at Savills, says: “We have seen the earliest signs that some mortgaged buy-to-let investors may be selling stock.
“Those entering the market will be looking very carefully at yields and that will put the spotlight on urban markets outside the capital.”
As far as rental values are concerned, Savills expects rents to rise in line with incomes, with rental growth likely to exceed house price growth in the capital.
The market in London has had to accommodate a glut of stock after investors scrambled to buy before the 3% Stamp Duty surcharge was introduced. Asking rents dropped by 3.2% in the year to June 2017, compared to a 1.9% increase across England and Wales.
Rents in London have now stabilised. Compound growth of 17% is projected from 2018-22, 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, Savills believes. Increased rental supply there will dampen potential rental growth beyond the capital.
Lawrence Bowles, the Research Analyst at Savills, adds: “The rental outlook is strongest in regional cities that attract employees from high value sectors, such as professional services, technology, and finance.”
Are you put off investing further in buy-to-let by the Government’s recent regulation changes?