“Assuming that stricter rules for lending to borrowers with multiple buy-to-let properties would only impact a minority of the business is a misjudgement,” said the report, undertaken by the Centre for Economics and Business Research.
The bank’s data shows that, among its clients, a clear majority of borrowers count as portfolio landlords both amongst private investors, and those with limited company structures.
In the vast majority of cases, automated loan approval processes will no longer be sufficient, said Shawbrook. Increasing complexity and the need for a manual process will reduce the number of lenders available to borrowers.
Earlier this year, Mortgages for Business chief executive David Whittaker warned brokers not to allow their clients to be treated as guinea pigs when the new rules come in.
While the report highlighted the challenges facing buy to let and the prospects of a cooler market, it said there will still be good investment opportunities for a more professional investor community.
Commenting on the CEBR findings, Stephen Johnson (pictured), deputy CEO and managing director for commercial mortgages at Shawbrook, said: “As the spotlight continues to shine on buy to let, 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.”
He added that the fundamentals remain compelling for those who adapt to the new environment, with demand for private rental accommodation set to remain strong.
“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.”
A cloud on the horizon is the dominance of the London and South East market, where the combined share of the buy-to-let investment market is nearly 40%. The report raised concerns about the sustainability of the market, with demand in the capital from the international migrant community likely to be affected by Brexit.
The report added that transaction levels are yet to recover since the introduction of the Stamp Duty surcharge. Given the implications of tax changes on private landlords, commercial landlords will gain market share, along with those willing to register their business as a private limited company.
Higher costs are forcing landlords to adapt – looking at different locations and different types of property. Commercial and semi-commercial units have risen in popularity as have Houses of Multiple Occupation (HMOs).
Yet the report forecasts that the share of dwellings that are privately rented will increase from 21% in 2016 to 28% in 2027. This is driven in part by issues of affordability but also the appeal of home ownership for many may be diminishing.
Buy-to-let remains a viable investment: the report forecasts a 21% increase in average rents by 2027. While the analysis estimates a decline in rental yields from 5% in 2016 to 3.5% by 2027 as house price growth outstrips rental growth, capital gains will make buy to let attractive. The average cost of a UK home is predicted to reach £336,845 by 2027, 59.7% more than in 2016.