At least £18bn of equity tied up in houses and flats is expected to be released from property in coming years, with investors expected to spread this money across a range of asset classes, according to Skandia.
Sliding residential property prices, compounded by higher mortgage servicing costs and sluggish rental growth, will drive many aspiring landlords from buy-to-let property.
This will release a vast sum of private investment capital that has gone into property speculation in recent years, Skandia says.
Buy-to-let property investment has grown strongly on hopes of sustained high financial returns compared with other asset classes, with much of this growth coming from mortgage-financed investment.
The stock of buy-to-let mortgages rose from £2bn in 1998 to £120bn by the end of 2007, while the buy-to-let share of the total UK mortgage stock also increased significantly from less than 1% in 1998 to 10% over the same period.
According to Skandia, mean reversion would lead to £77bn of buy-to-let mortgage surrenders and reduce the stock of buy-to-let mortgages to £44bn, a level last reached in 2004.
Assuming the average maximum loan-to-value ratio of UK landlords of 80% over the past 10 years, it is estimated that a minimum of £18bn of equity would be released if the buy-to-let mortgage pool contracted to £44bn of outstanding loans.
Commenting on the findings, Nick Poyntz-Wright, chief executive of Skandia UK, says: “Private investors have accumulated significant amounts of equity in buy-to-let properties after a long period of strong growth in home and flat values. Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property and many will choose a more diversified approach.
“With inflation rising, investors realise the need for strategies that preserve their wealth. Asset diversification, as well as taking advantage of efficient tax wrappers, is an essential ingredient of any investment strategy whatever the individual’s risk appetite may be.”
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