A report produced by Shawbrook Bank and the Centre for Economics and Business Research predicts that activity in the BTL market will continue to fall until 2021, at which point the market will stabilise.
The report uses a scenario analysis approach to chart the effect on the market of various government interventions over the years, such as changes to mortgage interest tax relief and the stamp duty surcharge, and projects this to 2023. It compares this with as picture of how the market would likely look if these had not occurred.
The bank concludes that government policies have had a marked effect, but that the trends intervention has helped foster, such as a 27 per cent fall in BTL mortgage approvals in 2017, will eventually be reversed due to an increasing “professionalisation” of the sector as stronger regulations are brought in and a “core” of landlords react accordingly.
This broadly positive picture adds to the findings of Paragon Bank and landlords who responded to Your Move’s recent Landlord Sentiment Survey.
The report adds that the regional focus on the BTL market is changing, with greater yields to be found in the North West: “London has long dominated the BTL sector. But a flat housing market and limited capacity for rental growth in the capital means that other places in the country offer better yields to investors, especially cities with large student populations.
“Brexit adds a further layer of uncertainty – with a number of City jobs at stake, London’s housing market might be in for a further price correction,” the report concludes.
Shawbrook managing director of commercial mortgages Karen Bennett says: “Whilst the series of government and regulatory changes have had a significant impact on the sector, we have seen the impact felt more heavily amongst the “amateur” landlord community which has presented growth opportunities for professional investors.
“Recent political turbulence has had an amplifying effect on investor confidence but positively, the market remains buoyant for those with a long-term strategy who draw upon specialist advice to fully understand the impact of these policy shifts.”
“Regulatory change that supports the public interest is not something to be afraid of, and we predict that this high performing asset class will remain a fundamental strength over the long-term provided lenders continue to adapt and change alongside it.”