Institutional investors are investing less money in UK residential property than at any point in the past seven years, in spite of a buoyant market that has led some to warn of a developing house price bubble.
The total investment by pension funds and endowments in UK houses in 2012 was only £495m, down 31 per cent from £719m in 2011 and less than a quarter of the £2.2bn invested in 2010, according to data from HMRC gathered by EMW, a law firm.
The rapid surge in UK house prices in recent months – particularly in London – has depressed rental yields on commercial properties, pushing many institutional investors out of the market, say property speculators.
Banks have also slowed sales from their property portfolios to third parties as repossessions and defaults have fallen.
“Commentators have been predicting for some time that institutional investors would move into residential property to take advantage of the growing lettings market, but these statistics show that this hasn’t happened yet,” said Nick Marshall, head of real estate in EMW’s London office.
“Rising house prices and a low level of repossession has meant that institutional investors have been unable to get their hands on large portfolios of residential property,” Mr Marshall added.
“Instead, investors are often forced to buy individual properties, which makes investing in residential property a more expensive and time-consuming exercise.”
The Bank of England moved to try to calm the property market last week when it announced it was to end the incentives for banks to lend money to households in the government-backed Funding for Lending Scheme.
The bank also said it would end a waiver on bank capital requirements for residential lending.
Regulators are increasingly worried about a “tail” of particularly indebted borrowers who would be vulnerable to a sharp rise in interest rates.
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