Buy-to-let boom could be coming to an end, investment group warns

Buy-to-let property investors could put substantial amounts elsewhere as rental returns drop, mortgage cost rise and property becomes a less attractive investment, it is claimed.

It is estimated that buy-to-let investors could withdraw £18 billion from the residential market as they find better places for their cash, according to investment services group Skandia.

The company said the sector would reduce as house prices continue to fall sharply but gave no indication as to when a large scale sell off might happen.

The market has grown considerably. Buy-to-let purchases now account for 10% of all mortgages, compared with just 1% a decade ago. They are regarded as being vital in providing a market for many of the more speculative inner city developments over the past few years.

Skandia said that £120 billion is now invested in buy-to-let mortgages in the UK, and that investors would be likely to sell up as they saw mortgage costs rising while house prices and rental returns are stagnant or falling.

'Private investors have accumulated significant amounts of equity in buy-to-let properties after a long period of strong growth in home and flat values,' said Nick Poyntz-Wright, chief executive of Skandia UK.

'Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property and many will choose a more diversified approach,' he added.

There are signs that residential rental returns are falling in some areas as home owners decide to let their properties rather than sell them. Estate agent Cluttons said rents had fallen by up to 5% in Kensington over the last month.

'To prosper in the current conditions, landlords must have realistic expectations regarding rental income and steer clear of void periods at all costs. A number of "accidental landlords" who have come to the market reluctantly after failing to sell their property, are refusing to budge at all on the asking rent, instead settling for void periods which professional landlords know are seriously detrimental to yields,' said Amelia Greene, partner for lettings at the South Kensington office.