Buy to let returns could drop by 60 per cent, experts warn

LSL Property Services has issued a cautionary warning to property investors and buy to let landlords, claiming returns could fall by as much as 62 per cent in the next 12 months

The organisation – which owns 500 estate agents and high-profile brands including Your Move, Reeds Rains and Marsh & Parsons – says that by April 2016 returns could be as low as 3.4 percent for those operating within the buy to let market.

This would be a sharp drop from the returns of almost 9 percent which are currently being experienced and accounts for both rental income and capital growth.

If their estimates are correct, then this would result in the lowest buy to let returns for four years and could prompt some investors to re-evaluate their portfolios.

Negative capital growth predicted

According to a statement from LSL Property Services, landlords currently enjoy returns of £15,503 on average but this could drop by more than £3,000 in the next year, driven by negative capital growth.

“With this figure [£15,503], rental incomes makes up £8,247 while the average capital gain amounts to £7,256”, they explained before predicting a more than 50 per cent decrease in returns.

They said new rental income figures would average at £9,292 by next April – higher than the current figure – but that capital growth would be negative and cause a drop in returns worth £3,036.

Adrian Gill, a director at LSL Property Service and responsible for overseeing the company’s estate agency division, also spoke of rising house prices and increased interest in the buy to let market while issuing the warnings.

He said that landlords should see increasing property prices “as a bonus” and also urged them to focus on “improving prospects of a steady rental income” that could help their portfolios remain profitable despite some uncertainty.

“Price dips in recent months are unlikely to continue for a long time,” he said.

“[This] makes predictions for the next year more difficult than usual”.