London’s B2L landlords in for a shock
He said the Bank of England’s macro prudential regulations will curb house price inflation by limiting how much banks can lend, while he concluded that we have entered an era of low returns.
In London high property prices mean landlords have increasingly relied on capital gains to make significant profits.
In the year to August 2014 prices in the capital increased by 21.6% on an annual basis, although this slowed to 10.9% in May 2015, data from the Land Registry shows.
Green said: “The UK housing market is currently looking a bit subdued for another reason. This is the set by the Bank of England macro prudential regulations that limits how much banks can lend for mortgages.
“This is sensible, as it will curb house price inflation, but could come as a shock for the more recent wave of buy-to-let purchasers who expected quick capital gains to compensate for very slender yields in London and South East.”
He added: “It appears that we’re entering into a new investment era and, in this environment, investors should expect lower returns from property, bonds and the stock market.
“There are many factors contributing to the creation and development of this new investment era.
“However, the most common link is that quantitative easing has pushed down borrowing costs and driven cash savings into more rewarding investments.
“The combined effect has been to inflate asset prices, from housing to shares to government bonds.
“The big question is: Will these assets preserve their value if/when the Bank of England and the Federal Reserve eventually normalise monetary policy and raise interest rates? Or will their values fall?
“The U.S. looks likely to be about to find out, with market analyst increasingly confident of a Federal Reserve rate hike later this year. The Bank of England might follow in a year’s time if wage growth starts driving inflation up.”