Survey suggests private investors are looking to place cash elsewhere as property becomes less attractive asset

Buy-to-let investors could withdraw £18bn from the residential market as they find better places for their cash, according to investment services group Skandia.

The company said the sector would reduce to its average size over the past 10 years as house prices begin to fall sharply and property becomes a less attractive asset.

Buy-to-let purchases, which now account for 10% of all mortgages, compared with just 1% a decade ago, have been vital in providing a market for many of the more speculative inner city developments over the past few years.

Skandia said that £120bn was now invested in buy-to-let mortgages in the UK, and that investors would be likely to sell up as they saw mortgage costs rising while house prices and rental returns are stagnant or falling.

Nick Poyntz-Wright, chief executive of Skandia UK, said: “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

Nick Poyntz-Wright

"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.”

The firm did not offer a timescale for when the fall would happen by, or evidence to support their hypothesis that buy-to-let investment would fall to the average level for the past decade.

However, the survey comes as the first evidence appears that residential rental returns are falling as home owners decide to let their properties rather than sell them. Estate agent Cluttons said rents had fallen by up to 5% in Kensington over the last month.

Amelia Greene, partner for lettings at Cluttons' South Kensington office, said: "The struggling sales market has fuelled a mini boom in lettings, but we are now starting to see rents dip across the board, as the number of new tenants coming to the market levels off.

"To prosper in the current conditions, landlords must have realistic expectations regarding rental income and steer clear of void periods at all costs. A number of 'accidental landlords' who have come to the market reluctantly after failing to sell their property, are refusing to budge at all on the asking rent, instead settling for void periods which professional landlords know are seriously detrimental to yields."

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