Rent Caps Will Scare Lettings Investors Away
Headline-grabbing demands for more regulation and rent caps risk frightening buy to let investors away, a leading analyst warns.
Doug Shephard is the author of the Home asking price index, a respected monthly rentals and sales market monitor.
In the latest edition he bemoans the absence of stock available for prospective tenants – a trend seen most acutely in London and especially central London.
He writes: “Clearly, the only viable path to offering more choice and stabilising rents is greater supply. Higher yields will help, but a more investor-friendly approach by central and local government would surely go a long way further.
“Mayors and radical pressure groups who champion rent caps and further extensive regulation are simply going to scare away investors and make matters worse.”
Shephard says typical yields in London are now as high as six per cent and still rising.
He notes that what he calls “real mortgage interest rates” – taking inflation into account – are still hugely negative.
He says that, in brief, “an investor can get a six per cent return (gross) on a loan plus deposit, and inflation will erode the outstanding debt at the rate of inflation less interest.”
And he adds: “That’s about a 50 per cent reduction in the outstanding debt (in today’s money) over five years. Meanwhile, the capital value of the underlying property is likely to have increased.”
On the sales side the Home website says the post-lockdown buying frenzy is fading with stock levels recovering in all regions except London.
The site notes that recent interest rate rises appear not to be deterring buyers because, owing to inflation, real mortgage lending rates are highly negative.
However it notes that for the same reason “real home price growth is also negative by a growing margin.”