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Landlord yields forecast to drop over next 10 years

Stephen Johnson

Landlords could see their yields plummet over the next decade, according to new research.

Shawbrook Bank’s ‘The UK Buy-to-Let Market’ report, undertaken by the Centre for Economics and Business Research, indicated that yields are set to drop from an average of 5% in 2016 to around 3.5% by 2027.

“As the spotlight continues to shine on buy-to-let (BTL), 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,” said Stephen Johnson, deputy CEO and managing director for commercial mortgages at Shawbrook (pictured above).

“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.”

The report indicated concern over whether increasing residential prices and rents could threaten the sustainability of the London and South East BTL market.

The combined share of the BTL investment market in these areas is nearly 40%.

Brexit could provide further uncertainty over the London market, with demand from the international migrant community a large reason for the popularity of renting in the capital.

Despite these fears, the report found that commercial landlords are set to gain market share, as tax changes for mortgage interest payments only affect private landlords.

Demand for private rental accommodation is also expected to remain strong, with the share of dwellings that are privately rented forecast to rise from 21% in 2016 to 28% in 2027.

The report highlighted that BTL will become a more attractive investment in the coming decade as UK property owners benefit from a predicted average increase of 59.7% in the value of their property by 2027.

“BTL 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,” added Stephen.

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