According to Savills’ Residential Property Focus, the cost of buying will fall back in line with the cost of renting by the end of 2009. However, Lucian Cook, director of residential research at Savills, told PIN that he does not believe that the majority of buy-to-let investors will be able to take advantage of this in the short-term.

The research found that when the property market peaked in 2007 the cost of ownership was +44% higher than that of renting. This was before capital repayments were taken into account, which this increased the disparity to +76%. With such a difference between costs, investors were faced with low gross yields as in Q3 2007 the average yield was 4.8%. Savills forecasts a -25% fall in capital values and a +10% rental growth therefore leading to a convergence of costs by the end of 2009.

Savills expects that new acquisitions will become more affordable for landlords and yields are forecast to increase to 6.7% by 2010, and investors will continue to be at the ‘mercy of lenders’ and their tight lending criteria.

Cook told PIN: “The ability of landlords to make new investments has become increasingly difficult, as the disparity between costs of ownership and renting has increased. In the short to medium-term the prospects of further falls in capital values and the significantly reduced availability of mortgage finance will compound the reduction in buy-to-let activity. However, the same factors are resulting in increased rental demand and the corresponding rental growth should enable all but the most highly geared investors to ride out the market over the medium-term.”