Typical buy-to-let yields will fall from 5% in 2016 to just 3.5% by 2027, a report from Shawbrook Bank undertaken by the Centre for Economics and Business Research has found.
However it went on to state that buy-to-let will remain a viable investment due to capital growth of around 60% over the next decade.
Stephen Johnson, deputy chief executive and managing director for commercial mortgages at Shawbrook, said: “As the spotlight continues to shine on buy-to-let, the landlord community will need to adjust to lower levels of available debt and will therefore require more equity, or have to grow at a slower pace than was previously possible.
“This will mean a period of adjustment for landlords who will have to consider how the changed environment affects them individually.
“As with all market shifts there will be winners and losers, but it is most likely that professional landlords with equity and scale from larger portfolios will be better positioned to weather the changes.
“Buy-to-let has produced excellent total returns for property investors in the past, and notwithstanding some of the new challenges, the fundamentals still remain compelling for those who adapt to the new environment.”
The report also questioned the sustainability of the London market, where buy-to-let has a 40% share.
It suggested a slowdown in migration due to Brexit may put the brakes on the market, which heavily relies on international migrants.