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Landlords 'throw in the towel'

30/05/2007

Rising interest rates and falling yields are forcing a growing number of landlords to give up on BTL...

Cheap credit and a booming housing market have spawned a army of buy-to-let investors in Britain in recent years, many of whom are sitting on tidy profits as property prices have trebled over the last decade.

The latest survey from the Royal Institution of Chartered Surveyors, however, suggests easy returns may be a thing of the past and is another sign the housing market is beginning to slow down after four interest rate rises since August.

More than five percent of landlords opted to sell properties when their tenants' lease expired in the quarter to April, the highest percentage in two years.

Just 4.1 percent of landlords opted to sell in the quarter to January and less than four percent in the same quarter last year.

Rental growth failing to keep pace with inflation

The Bank of England raised interest rates to 5.5 percent this month and some economists predict rates could go to 6 percent by the end of the year.

While tenant demand remained robust, rental growth failed to keep pace with property price inflation causing gross yields to fall their fastest rate in three years.

"Falling yields set against rising interest rates can only have squeezed landlords' operating margins even further, making residential property less enticing for new investors," said Kelvin Davidson, property economist at Capital Economics.

Bank of England policymakers have made no secret of their wish to see house price inflation moderate and have raised interest rates four times in the past year to curb price pressures.