Will Landlords Sell Up?

Here’s a little multiple choice question for you.

Buy-to-let will:

A. Contract significantly as landlords cut their losses and sell, sell, sell

B. Hold firm in the short term and expand thereafter as landlords rake in the profits thanks to rising demand

Skandia, the savings and pensions chappies, would definitely put their tick next to ‘A’ – they’ve just published a piece predicting a stampede for the exit.

Why? Because a triple whammy of falling house prices, higher mortgage costs and sluggish rental growth will, they say, soon create the perfect BTL storm.

Abandon hope, all ye who own investment properties, for the day of reckoning cometh. Ask not for whom the bell tolls, etc etc, because, my friends, it tolls for at least two-thirds of the entire market.

Two-thirds (gulp?)  Yep, that’s right. Skandia point out that the market is now worth £120bn but could shrink to just £44bn once a Darwinian cull has done its deadly work.

Blimey! Sounds serious!

But what evidence are we offered in support of this grim scenario? Any juicy stats? Any compelling facts and figures?

Err. Nope, not really. Skandia’s argument is based on the theory of mean reversion – that after an asset booms it will then revert to its average performance.

I can’t claim to have even a passing understanding of the maths behind said theory, but it does beg all sorts of questions about the strength of the rental market and the medium to long-term performance of the housing market.

It also begs the question of Skandia’s motivation. They hope that as landlords start to struggle they’ll indulge in a bit of asset diversification – such as selling up and investing the proceeds with companies like … wait for it … Skandia!!

Ah! Mean reversion … now I understand…

• Will The Poles Bring Down Buy-To-Let? (0)
• Investor With 900 Houses Reveals Buy-To-Let Secrets (0)
• But My Dog Has Ribbons! (5)
• Backfiring Chickens … (0)
• Anyone Know What’s Happening To Rents? (2)