Deutsche Bank has warned that the 鈥渋lliquid鈥� UK housing market is vulnerable to an 鈥渋mpending shock鈥�.
A report by the markets research department of the bank argues that 鈥渕aterial changes to buy-to-let economics鈥� could lead to a fall in prices, especially in London prime residential market.
Analysts Oliver Reiff and Markus Scheufler say in the report that a combination of new tax rules that reduce buy-to-let returns and new mortgage regulation that could restrict the use of leverage will 鈥渞esult in substantial fall鈥� in buy-to-let purchases 鈥� and in some cases substantial sales.
They warn of the 鈥渞isk of a shock to pricing due to a significant decline in [buy-to-let] demand鈥�.
Without going as far to predict what will happen to capital values, the report says a 鈥渞eturn to the affordability levels of 2012-13 would imply a 20% fall in pricing鈥�.
Deutsche Bank said that approximately 40% of market turnover in recent years was attributable to buy-to-let investors, which has massive implications should buy-to-let investors exit the market in significant numbers.
The analysts expect buy-to-let demand to fall by about 50%.
The bank placed a 鈥榮ell鈥� recommendation on Capital & Counties (Capco), a listed company that owns various London housing development projects.
鈥淲e play our expectation of falling mid-prime London residential prices through Capco and its Earls Court residential development land,鈥� it said.
鈥淲e expect the valuation of Earls Court to fall by 65% driven by a 20% decline in average pricing per square foot.鈥�
