Landlord confidence nearing pre-2015 Budget levels, report

BM Solutions’ latest quarterly index found landlord sentiment improved “significantly” in the third quarter of this year and has broadly reached levels seen mid-last year.

The index queried landlords on their outlook in five areas: capital gains, rental yields, UK financial market, UK private rental sector (PRS) and own letting business.

It found landlord confidence across four measures had improved. The only exception being prospects for capital gains, which was down 6% on last year, before Osborne’s Budget.

However, following two quarters of substantial decline, this too had rebounded – from +24 to +41, according to the report.

The Chancellor announced in his July 2015 Summer Budget he would cut the tax relief given to buy-to-let landlords on interest payments from a maximum of 45% to the basic rate of 20% from April 2017.

The move faced heavy criticism from landlords, two of whom took their case to court under representation from Cherie Blair QC.

BM Solutions head Phil Rickards said: “Confidence in the buy-to-let market has bounced back following the Budget announcements of last year. It’s great to hear landlords more confident about the future prospects of their own letting business as tenant demand overall remains healthy.”

He added: “It’s clear landlords are also expecting the changes to mortgage tax relief to impact profitability, but those largely impacted are looking at ways to mitigate this in a number of ways clearly demonstrating their long-term commitment to the sector.”

Landlords in London and the east of England were the most confident about their capital gains, with those in the north, West Midlands and Wales the least, the report said.

This is despite separate research suggesting northern regions were best for achieving high yields in the buy-to-let sector.

Shrinking demand

Landlords were also optimistic about the future of their lettings business, with many looking to expand their portfolios. The average portfolio currently has 7.7 properties, up from 6.8 properties in Q2, according to BM.

However, 12% of landlords said tenant demand had shrunk this quarter – the highest proportion since mid-2013.

Tenant demand was strongest in the south east where 40% of landlords reported an increase in the last three months. However, it was found to be cooling most significantly in central London, where three in 10 said they had felt a drop.

Despite this, landlords remained neutral about the impact of Brexit on their business, with almost a third expecting no impact at all and a quarter unsure either way.

Only London and Scotland-based landlords continued to believe an exit from the EU would negatively impact the UK’s PRS.