Landlords are returning to the buy-to-let sector, despite low confidence in business expectations following Government changes to the sector, according to a survey by BDRC Continental on behalf of Paragon Mortgages.
Landlord confidence remained low in the first quarter (Q1) of the year, as buy-to-let investors face a 3% Stamp Duty surcharge on property purchases. Additionally, many landlords are preparing for the forthcoming reduction in mortgage interest tax relief.
As a result, just 41% of landlords rated their business prospects as either good or very good, down from 65% in the same period last year. However, Q1’s figure is just 2% down on the previous quarter, suggesting that falling levels of confidence have stabilised.
The research also indicates that more landlords are looking to buy rather than sell, reversing the situation seen in Q4 2015. In Q1 2016, almost a fifth (19%) of landlords said that they intend to purchase a buy-to-let property in the coming year, up from 17% in the previous quarter. Just 16% intend to sell a property, down from 19% in Q4 2015.
Driving this trend, an increase in tenant demand was recorded for Q1 2016, with 39% of landlords claiming that demand was rising either slightly or significantly, up from 34% in Q4 2015.
Rental yields were also up in Q1 2016, to an average of 5.7%.
Despite a lack of confidence in the sector, landlords still view buy-to-let investment favourably as an asset class. The survey found that 38% of landlords believe investing in rental property to be much better than other investment options, such as stocks and shares. A further 33% claim investing in buy-to-let is a little better than other investments, and just 10% say investing in the private rental sector is worse than other investments.
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The Director of Mortgages at Paragon, John Heron, says: “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.
“In the previous quarter, we saw more landlords respond very negatively to the announcements on Stamp Duty and tax on rental income, with more intending to sell rather than buy property – this trend is now reversed and purchase intentions have risen. Likewise, although confidence remains low, the significant falls we have seen in previous quarters have abated.
“The main driver of this recovery remains, as ever, tenant demand, which has risen in Q1 2016, along with yields. 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.”