Confidence in buy-to-let market stabilising driven by tenant demand

A study of more than 1,000 private rented sector landlords carried out by BDRC Continental on behalf of Paragon Mortgages found that while confidence in the market remained subdued it was beginning to stabilise.

When asked about expected business in the next three months in Q1 2016, 41% of landlords said prospects were ‘good’ or ‘very good’. This is a drop of 2% from the 43% who felt positive about prospects in Q4 2015. However, Paragon believes this reflects a stabilising of confidence as levels had previously dropped from 65% following the announcement of the Stamp Duty surcharge.

John Heron, director of mortgages at Paragon, said: “Increased stamp duty, as well as reduced levels of income tax relief for landlords due to come into force next April, have undoubtedly impacted landlord sentiment. Confidence by some measures is down by around a third when compared to the same period last year. That said, this data does suggest that confidence is stabilising.”

The first quarter (Q1) of 2016 saw landlords’ property purchase intentions edge above selling intentions, reversing the situation seen in Q4 2015 when more landlords were looking to sell property than were looking to buy.

Nearly a fifth (19%) of landlords indicated that they intend to purchase a property in the coming year, up from 17% in Q4 2015, while 16% of landlords indicated that they intend to sell a property, down from 19% in the previous quarter.

There was an also an increase in tenant demand in Q1, with 39% of landlords reporting demand as increasing either slightly or significantly, up from 34% in Q4 2015.

Heron said tenant demand is the main driver of recovery in the sector.

“Landlords are clearly taking the view that buy-to-let remains an attractive long-term, demand driven investment, which continues to outperform other asset classes,” he said.