The Buy to Let Britain report from Kent Reliance shows the 'shifting sentiment' in the market in response to the new tax landscape for landlords.
In a survey of 754 landlords, run in association with BDRC Continental in the first quarter of 2017, 41% were positive over the prospects of their portfolios, slightly down from 44% in the previous quarter. Those with a positive outlook still outnumber those with negative expectations, but it is a long way indeed from the 67% of landlords who were confident three years ago. In the first three months of 2017, 10% of landlords added to their portfolios, only slightly outnumbering the 8% who reduced their holdings. However, over the next three months, 19% of landlords expect to reduce their portfolios, compared to 13% increasing.
Rather than a mass exodus from the market, the shifting sentiment reflects how the reality of higher tax and running costs will undermine the supply of new rental properties. In fact, there may be some consolidation in the sector as small-scale speculators and amateur landlords leave the market as a response to tax changes affecting higher rate tax payers. This change in dynamic presents an opportunity for accelerating the professionalism of the sector, both in terms of the size and scale of landlords, and the service many provide to their tenants.
On the demand side, the tenant population is growing, but it is no longer doing so at the speed of recent years. While 27% of landlords saw tenant demand increase in the last quarter, more than saw it decrease, this was down from 39% a year ago.
Andy Golding, Chief Executive Officer, One Savings Bank, said:
"Changes have come thick and fast for landlords since our last edition. First, the housing market came to the fore in the government’s housing white paper in February, which recognised the need to stimulate housebuilding and loosen restrictive planning rules. This was followed by a raft of pledges in each of the political parties’ manifestos ahead of the recent general election. The Conservatives promised to build 1.5 million homes by the end of 2022 while Labour committed to build 100,000 council and housing association homes a year. The failure of either party to secure a majority questions whether these promises will be met with action, however we have at least seen a firm recognition of the scale of the housing crisis.
"While this will hopefully shape the wider housing market in the longer term, landlords have been getting to grips with more immediate changes. This April saw changes to tax treatment of BTL mortgages introduced, raising costs for many landlords. The Prudential Regulation Authority (PRA) first round of changes to mortgage underwriting took effect from January, with the second; altering the way larger portfolio landlords are treated, set to come in to play in October. Against this backdrop, costs continue to rise, even before we factor in higher tax bills for many landlords. In the last report from our Buy to Let Britain Research Series showed that the annual running costs of a buy to let property have reached £3,632 – up a quarter since 2007.
"These factors are clearly beginning to drag on the growth of the sector; landlords have had to navigate the changing tides of taxation and regulation, at the same time as seeing the cost of doing business increase. We look at how they are doing so, how returns and rents are performing, and whether demand for, and access to, mortgage finance has been hit."