Deutsche Bank warns housing market in for ‘major shock’ after BTL tax hike

A stark warning on the UK’s “illiquid” housing market sent shockwaves through the financial markets yesterday.

In a report to investors, Deutsche Bank said that “material changes to buy-to- let economics” could result in a “substantial fall” in such purchases, particularly in London’s prime resi market.

The words “major shock” were used, and a “sell” recommendation was slapped on Earls Court developer Capco, which sent share prices into a tailspin. “New tax rules will reduce BTL returns on equity towards zero and result in low or negative cash flow, particularly for new landlords,” said analysts Oliver Reiff and Markus Scheufler, who predict that buy-to- let demand could fall by “about 50%”.

“We estimate that circa 35% of London BTL owners could look to sell – 10% who have capital repayment mortgages, 18% who are recent interest only or mortgage equity withdrawal purchasers and we estimate a further 7% of BTL owners could sell due to inheritance tax,” they added.