It’s no secret that London landlords have long sacrificed yield in expectation of superior capital growth but the consequences of 2020 for the once thriving market are beginning to be felt – and it could spell trouble ahead.

More than 700,000 foreign-born residents have left London since the start of the pandemic according to estimates from The Economic Statistics Centre of Excellence. Its population is falling for the first time in 30 years at the same time as foreign buyers have deserted the capital’s prime, central areas.

Boosted by our vaccine roll out the optimists think overseas renters and buyers will return once shops and businesses reopen but the pessimists say Brexit and tougher immigration rules could hit hospitality and retail workers putting the brakes on any rental recovery.

Across London rent reductions of up to 25 per cent have been seen with new-build flats proving the least attractive rental proposition for the capitals’ tenants who’ve suffered nearly a year working from home and now value outside space above proximity to their ghostly workplace.

For highly leveraged landlords with London-centric portfolios it’s a problem. Their incomes have fallen, they may be holding more empty properties than they bargained for and are earning less from the ones they can let. But they still have to service their mortgages.

We haven’t seen evidence among our borrowers that suggests landlords in this position are struggling but it’s definitely on our radar as one to watch, as are those landlords with portfolios weighted towards student accommodation.

While university towns have historically driven higher yields than the capital, a year of remote learning combined with a fall in foreign students and growing public concern over the financial position of students who are paying for accommodation they are not using is storing up problems for the future.

Whether that’s through students withholding rent for properties they can’t use, or a more permanent switch to remote learning for some courses, there could be a similar oversupply of properties that drives down rental yields in these towns.

All this means it’s more important than ever for us to look at the geographical and property types within a portfolio to work out if there are any concentration issues that could impact on the income coverage needed to underwrite the overall portfolio.

There could even come a day when lenders apply different levels of income coverage to different property locations or types to manage their risk.

But these are all challenges lenders and landlords are willing and able to overcome – in much the same way the industry has developed and adapted to changes to the tax regime.

The stark fact remains that buy to let as an investment class, structured tax efficiently, is a must have for savvy investors who want to take advantage of leveraged income and capital returns as part of a balanced investment strategy in a zero-interest environment.

Peter Beaumont is chief executive of The Mortgage Lender