A two-speed market has emerged in the buy-to-let sector as most smaller landlords have stopped adding to their portfolios, while their large scale counterparts continue to make targeted investments, according to Paragon.
The buy-to-let mortgage provider reports that large scale landlords are currently almost three times more likely to buy property than investors with smaller portfolios.
Less than one in 20 - 4% - smaller scale landlords are considering a property purchase in the next quarter, compared with 11% of larger scale landlords.
Paragon’s latest quarterly survey, which tracks the experience of more than 200 seasoned landlords, shows that landlords now have an average of 13.1 properties in their portfolio, up from 12.8 properties three months ago.
Growth has been fuelled primarily by landlords with between 11 and 20 properties, which have grown as a proportion of the survey population from 14% to 18%.
Consequently, average portfolio values are getting higher – rising from £1.68m in the first quarter of the year to a record high of £1.76m this time round.
Given that HMO property (House in Multiple Occupation) offer some of the most profitable rental yield returns in the UK, it is perhaps unsurprising to find that there has been a significant increase in those considering buying HMO property, up from just 5% to 20%.
The findings suggest that landlords are looking to add higher yielding properties into their portfolios perhaps to offset some of the pressure from rising tax costs.
Despite the higher activity levels among larger scale landlords, overall landlord sentiment remains subdued with just 13% of landlords feeling optimistic about the future.
The study also found that more landlords are taking steps to bolster their financial position with debt still barely over one third of average portfolio value and mortgage payments as a proportion of rent down from 27% to 25%.
John Heron, director of mortgages at Paragon, commented: “Professional landlords with larger portfolios make up the backbone of the UK’s Private Rented Sector and it’s encouraging to see them continue to build their property portfolios.
“However, with a heightened interest in higher yielding property types and an increasingly prudent approach to financial management, it’s clear that landlords are proceeding cautiously as they seek to head off the twin challenge of higher tax and growing economic uncertainty.”