The lender said the average yields dropped from 5.7% in 2011 to 5% in 2016 – it predicts this could reduce further.
However, Shawbrook said there is still appetite to invest in property and the fundamental attractiveness of buy-to-let remains.
While yields have slipped, rents are rising – up 11.7% from an average of £805 per month in 2011 to £900 by 2016. By 2027 the bank said the average UK rent is likely to be £1,090.
Stephen Johnson, deputy CEO and managing director of the Shawbrook property division, said there has been an unprecedented raft of interventions in the buy-to-let market for investors to digest.
“Notwithstanding a more difficult environment, the fundamentals of the buy-to-let market remain robust and as an asset class it will remain an appealing investment with a combination of leverage, strong rental demand and long term capital appreciation remaining attractive.”
He added: “It would however appear to be favouring the professional landlord who is most likely to have the equity and scale from larger portfolios to better weather the changes and we will potentially see smaller investors exit the market altogether.”