Buy to Let

Landlord confidence drops to all-time low

Landlords’ confidence in their own business and the private rental sector has reached all-time lows – despite high profitability and a rise in yields.

BM Solutions, the buy-to-let brand of Lloyds Banking Group, has data for the second quarter of 2017 which show 36 per cent of landlords expressed confidence in their own business – down 5 per cent on Q1.

Just 9 per cent were confident in the sector as whole – also down 5 per cent.

Despite the fall in confidence, landlord profitability remains high, with almost nine in ten (86 per cent) landlords making a profit from their lettings business. 

Almost a third (31 per cent) generate a full time living from their rental portfolio and more than half (55 per cent) use the income to supplement their day job earnings.

Tenant demand softened further during the second quarter, with almost one in five landlords (19 per cent) reporting a decline – the highest level since the report began – driven primarily by central London, where the figure rises to 44 per cent.

Only four regions – the South West, Wales, the East Midlands and Yorkshire and the Humber – reported an uplift in demand during the second quarter.

The East Midlands led the way on yields with a rate of 6.9 per cent, followed by the North West at 6.4 per cent.

Central London and Outer London came bottom of the pile with yields of 5.3 per cent and 5 per cent respectively.

Confidence in near term prospects for: Q2 2017 Percentage change
UK’s financial markets 12 -14%
Capital gains 29 -5%
Rental yields 49 -2%
Own letting business 36 -5%
Private rental sector 19 -5%

Phil Rickards, head of BM Solutions, said: “Landlords are feeling somewhat gloomier in the second quarter and we know some are finding it difficult to adjust to the recent tax changes, which is why those with portfolios of over 11 are most likely to be looking to decrease the number of properties they own in the next year.

“This quarter the report has also highlighted declining tenant demand and a fall in intentions to raise rents. However, even against this backdrop, along with profitability remaining high, rental yields have edged up from the first quarter to 6 per cent.”

Jane King, mortgage adviser at London-based Ash-Ridge Asset Management, said the only sliver of positive news for landlords was Conservative minister Iain Duncan Smith’s recent call for a review of the buy-to-let tax changes.

“In London and the south-east, the yields are rubbish,” she added. “It is a perfect storm of low yields combined with tax hikes.

“Most landlords are doing it for pensions and perhaps thinking they could get better value out of the stock market.

“The 75 per cent loan-to-value days are pretty much out now. You are looking at 60 to 65 per cent loan-to-value, and most landlords just have not got the deposit.

“House prices are stabilising and many will be thinking they will got get anything out of it in the next few years. There is no positive news unless the government do something to change the rules.”

simon.allin@ft.com

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