Deutsche Bank has warned of a possible crash in the London residential property market as the economic conditions for buy-to-let owners change substantially.
London property prices, the report says, have been supported by the buy-to-let market in recent years with 40% of all transactions in this segment.
However, recent stamp duty changes and rules on tax deductibility has reduced yields to new buyers to as little as zero.
This could force those landlords on the edge of profitability to sell and those seeking to join the market struggle to make a business case for any new purchases.
In some cases, 35% of BTL owners could look to sell in coming years, the bank estimates.
Combined with the distinct possibility of interest rate rises and further regulation of mortgages, Deutsche estimates the London market could also see a 65% decline in mortgaged BTL purchases in coming years.
With these factors considered, the investment bank estimates that London could see a significant shift in the balance of demand to one where supply will far outstrip the current push for owned property.
Should this happen, the bank estimates a fall in prices as large amounts of London residential property enters the market over the short to medium term.
Government-backed schemes such as Help to Buy, which only finances new builds, will not be sufficient to meet the demand drop off the bank estimates, especially at the higher end.
However, Deutsche says the market remains stable with the lower end of the market particularly so, but the higher end will be susceptible to a shock should present policies persist.
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