Confidence up as landlords develop coping strategies

That is according to Paragon Mortgages’ latest Private Rented Sector (PRS) Trends report.

It found marked differences in landlord sentiment from this time last year when government plans to reduce tax relief on buy-to-let mortgage interest, compounded by an increase in Stamp Duty on new purchases, provoked uncertainty. At the time, the proportion of those expecting to sell property reached its highest ever level (25%).

However, Paragon said as the tax relief changes edge nearer, landlords have begun to develop strategies to manage the impact, and the figure is now reversing, down to 17%.

The most commonly reported actions have been to increase the rent they charge to cover some or all of the increased cost (24%), to maintain their current properties but not buy any more (21%) and to sell some of their properties and not buy any more (16%).

The proportion of landlords willing to purchase buy-to-let property in Q1 2017 has grown to 13%, up from a record low of 9% 12 months ago.

Of the 204 landlords interviewed, 94% described tenant demand as stable or growing, with fewer than one in 30 suggesting a decline. Tenant demand continues to impact average void periods, which remain unchanged at 2.7 weeks, with 48% of respondents reporting that their properties stand empty for less than two weeks. Average yields also remained remarkably stable at 6.1%.

John Heron, managing director at Paragon Mortgages, said: “With no material improvement in the supply of new housing against a background of strong population growth and household formation, it is no surprise that landlords are continuing to experience strong rental demand. It is promising therefore that there has been some improvement in landlord buying intentions albeit from a low base.”

However, he said caution is required. “The tax changes haven’t started to be implemented yet and therefore the real impact has not even started to be felt. In the last quarter, 33% of landlords have seen their total rental income increase – boosted by the 24% that have actively increased rent – which is not necessarily good news for everybody.”

While 71% of landlords said they believed they understood the implications of the income tax relief change, 29% either did not fully understand the changes or felt they needed more information.

Among landlords expecting to purchase, these are most likely to buy terraced houses (62%), flats/maisonettes (31%) or semi-detached houses (23%).