More than half of landlords (50.6%) still believe residential property remains a good long-term investment despite increased regulation, a survey shows.
The survey of landlords in England, commissioned by lettings agency Benham and Reeves, looked to understand their confidence in the future of the private rental sector, their investment intentions over the next 12 months, expectations around profitability, the barriers preventing further investment, and what could encourage them to expand their portfolios.
Landlords still believe in buy-to-let
Despite the challenges facing the private rental sector, 50.6% of landlords believe residential property remains a good long-term investment, even in the face of increased regulation.
However, confidence in the wider future of the private rental market is more subdued. Some 39.1% of landlords state that they are either somewhat or very unconfident about its long-term future, compared to 33.9% who remain confident.
Profitability is also a concern, with 38.9% expecting the profitability of their buy-to-let portfolio to decrease over the next 12 months, more than five times the 7.6% who expect it to increase. A further 45.8% expect profitability to remain unchanged.
Landlords holding rather than expanding
Almost two-thirds of landlords (62.7%) intend to maintain their portfolio at its current size over the next 12 months, suggesting that the majority are not looking to abandon buy-to-let despite the challenges they face.
However, just 3.9% intend to expand their portfolio, while 13.0% intend to reduce their holdings and a further 14.2% plan to exit the rental market entirely.
This means that 27.2% of landlords are currently planning to either reduce their portfolio or leave the sector altogether – seven times the proportion planning to expand.
Of those landlords considering expansion, long-term retirement and investment planning is the primary motivation, cited by 43.7%, followed by strong tenant demand (17.2%), the belief that property currently represents good value (16.1%), and expectations of house price growth (11.5%).
Around eight in 10 say buy-to-let is less attractive
Despite half of landlords continuing to believe in property as a long-term investment, there is little doubt that the appeal of being a landlord has diminished.
More than three-quarters (78.5%) believe being a landlord today is a less attractive investment proposition than it was five years ago, with 51.9% stating it is much less attractive.
Just 2.7% believe that being a landlord has become more attractive over the same period.
Taxation is the biggest barrier to further investment
When asked what currently prevents them from investing more in rental property, landlord taxation ranks as the biggest barrier, cited by 28.3%.
This places taxation considerably ahead of the Renters’ Rights Act and wider regulation at 15.1%, while property prices rank third at 12.6%.
Economic uncertainty (9.8%), concerns around problem tenants or rent arrears (8.6%), Stamp Duty (6.8%) and mortgage rates and finance costs (6.2%) also rank amongst the most prominent barriers to investment.
This sentiment is reinforced when landlords are asked what would most encourage them to purchase additional rental properties.
More favourable landlord taxation is by far the most common answer at 36.9%, followed by lower Stamp Duty (13.7%), a faster or easier possession process (12%), greater confidence in the economy (11.6%) and lower property prices (9%).
Traditional buy-to-let remains the investment of choice
For those landlords who are considering investing, the traditional residential single-let remains by far the most attractive option, favoured by 48.2%.
Properties requiring refurbishment rank second at 18.3%, followed by holiday or short-term lets at 11.0%.
HMOs (5.5%), student accommodation (4.3%), corporate lets (3.7%), and new-build properties (3.7%) account for considerably smaller proportions of landlord investment appetite.
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Marc von Grundherr, director of Benham and Reeves, comments: “Despite years of headlines predicting the demise of the private landlord, the reality is that buy-to-let remains an incredibly strong long-term investment and, importantly, half of landlords themselves still believe this to be the case.
“The issue isn’t that landlords have lost faith in property. Almost two-thirds intend to maintain their existing portfolios and, amongst those looking to expand, long-term investment planning is by far the most common motivation.
“The problem is that the environment in which landlords are being asked to operate has become substantially less attractive. Almost eight in 10 believe being a landlord is less attractive than it was five years ago and, as a result, very few are currently prepared to increase their exposure.
“It’s particularly telling that taxation ranks well ahead of the Renters’ Rights Act when it comes to the biggest barrier preventing further investment. Regulation has understandably dominated the conversation recently, but landlords have also faced a sustained increase in the financial burden placed upon them and our survey suggests this is having the greatest impact on investment appetite.
“The government should pay particular attention to the fact that more favourable taxation is also, by some distance, the most common change landlords say would encourage them to invest again.
“Rental demand remains extremely strong and the traditional residential rental property remains the preferred choice for those looking to expand. The appetite for buy-to-let hasn’t disappeared, but we need an environment that encourages landlords to put additional capital into the sector.
“Without this investment, rental supply will remain constrained and, ultimately, it will be tenants who suffer through greater competition and continued upward pressure on rents.”
