The lender’s quarterly index with BDRC Continental found that the number of landlords looking to expand their portfolio was at its lowest since research began in 2006.
Positivity was down across all dimensions measured: capital gains, rental yields, UK financial market, UK private rental sector (PRS) and own letting business.
The UK private rental sector recorded the biggest decline in sentiment, down 12% to just 25% who said they feel ‘good’ or ‘very good’ about its prospects.
Tenant demand has also softened, with 14% of landlords reporting a decline in the fourth quarter – the highest level for over five years. However, this is driven primarily by central and outer London, where the proportion of landlords reporting falling tenant demand now outnumbers those who say it is increasing.
Phil Rickards (pictured), head of BM Solutions, said: “Continued economic uncertainty, together with budgetary announcements that may impact on landlords’ profitability have resulted in a general weakening of confidence in the buy-to-let market in the last quarter of 2016. As a result, the proportion of landlords looking to expand their portfolio has fallen to an all-time low.”
Yet, despite this, Rickards said profitability remains strong and rental yields are stable. “Just over half of landlords are also still reporting a trend in increasing rents in the areas they let.”
Landlord confidence in prospects for capital gains is down year-on-year, but the other four key indicators remain more stable compared to quarter four 2015. Landlords in London and the East of England are the most confident, with those in the North East and Wales the least.
Optimism for own lettings business has also fallen by 10 points to a net +44 from +54 (Q3), with the proportion of landlords looking to expand their portfolio falling to an all-time low of 16%. The average portfolio currently has dipped slightly to 7.1 properties (down from 7.7 properties in Q3).
Regionally, tenant demand is strongest in the East Midlands and South West, with 43% and 40% of landlords respectively reporting a net increase in the last three months. Demand continues to cool most significantly in central London, where 43% report a decrease.
Just over half of landlords are seeing rents rise in their area. Over two fifths (45%) have increased rents across their own portfolio in the last year, with 37% intending to do so in the next six months (up 4% from Q3).
The average rental yield achieved remains stable for the third consecutive quarter at 5.8%.
Tenant demand
|
Property location |
Tenant demand in Q3 2016 (Net increase) |
Tenant demand in Q4 2016 (Net increase) |
Quarterly change |
| East Midlands |
37% |
43% |
6% |
| South West |
38% |
40% |
2% |
| South East |
40% |
36% |
-4% |
| Wales |
37% |
36% |
-1% |
| Yorks & Humber |
23% |
36% |
13% |
| North West |
30% |
35% |
5% |
| Scotland |
28% |
35% |
7% |
| East of England |
38% |
33% |
-5% |
| West Midlands |
36% |
27% |
-9% |
| London (Outer) |
26% |
23% |
-3% |
| London Central3 |
17% |
21% |
4% |
| North East |
16% |
20% |
4% |
Source: BDRC Continental
Average rental yields per region
|
Property location |
% |
| East Midlands |
6.7 |
| Wales |
6.4 |
| Yorkshire & the Humber |
6.1 |
| North West |
6.1 |
| West Midlands |
6 |
| East of England |
5.9 |
| South East (excl. London) |
5.7 |
| South West |
5.6 |
| Scotland |
5.4 |
| London (central) |
5.2 |
| London (outer) |
5.1 |
| North East |
5 |
Source: BDRC Continental
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