Landlords’ confidence knocked as government and Bank of England changes take effect

Study finds

Landlords’ confidence has fallen as investors face the prospect of higher tax costs and weakening house prices, according to the sixth edition of Kent Reliance’s Buy to Let Britain report.

Just 41 per cent of landlords are confident about the prospects for their portfolios, following the recent taxation and regulatory changes, according to a survey of more than 750 property investors. This represents a fall from 44% in the previous quarter, and compares to 67% seen three years ago. Political and economic uncertainty will only add to landlords’ concerns.

The value of the sector has risen by £68bn in the last year, climbing to a record of £1.3 trn. However, this annual rate of increase (5.5%) is just half the level seen a year ago. Lower confidence amongst landlords mirrors this slower growth in the value of the PRS. The slowdown in house price inflation has been a key driver, with the annual average increase slowing to 3.2% in the last year. Indeed, in the last 2 quarters, prices actually fell.

There are now 5.5m households in the sector, but annual growth of 2.3% is now only a third of the level seen three years ago. Tenant demand is still growing, albeit more slowly. 27% of landlords saw tenant demand increase in the last quarter, more than saw it decrease, but this was down from 39% a year ago, as first time buyer numbers continue to recover. On the supply side, there is a noticeable change too. In the first three months of 2017, the number of landlords expanding portfolios only slightly outnumbered those reducing them. 19% of landlords now expect to reduce their portfolios, compared to 13% increasing, as amateur landlords leave the market in response to the new tax rules affecting higher rate taxpayers.

Additional pressure on supply has come from the Bank of England’s Prudential Regulation Authority’s new underwriting standards, introduced in January. A quarter of landlords (24%) who have sought mortgage finance this year have found doing so more difficult, with a further 6% seeing their application rejected altogether.

Andy Golding, CEO of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, comments: “A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence. On top of this, investors are now being buffeted by the winds of political uncertainty following the election, and its impact on the economy.

“Uncertainty will pass, but the impact of changes to mortgage tax relief and underwriting standards will leave a more indelible mark on the sector. We believe these changes will alter the mix of landlords, creating a more professional and stable sector in the long-term. There are already some signs of consolidation, with highly geared amateur landlords most likely to leave, and we are also seeing investors take action to protect their margins.

“The fundamentals supporting the PRS have not drastically changed. Yes, first-time buyer numbers have been recovering, but there is still an underlying supply and demand gap across the country. Given the inability of any party to win a clear majority in the election, the implementation of a strategy to create a necessary housing boom seems unlikely. Affordability issues will therefore remain, and rental accommodation will retain its importance to those unable to take their first step onto the property ladder.”