Landlords are struggling to access finance, paying more in tax and are worried about the prospects for their portfolios as house price growth slows, a report has found.
Kent Reliance’s Buy to Let Britain report found these factors had combined to hit landlords’ confidence. Only 41 per cent now have a positive outlook for their property portfolios, compared to 67 per cent three years ago.
The value of the private rented sector is still climbing, but at half the rate of growth seen a year ago – in the last year it rose 5.5 per cent to £1.3trn.
But there has been a slowdown in house price inflation, with the annual average increase slowing to 3.2 per cent in the last year. In the last two quarters, prices actually fell.
Kent Reliance analysed ONS data and surveyed 754 property investors for the research, which forecasts consolidation among amateur investors as new tax and lending restrictions bite.
A quarter of landlords are finding it tougher to access finance following the introduction of the Prudential Regulation Authority’s new underwriting standards.
About 24 per cent of those who sought mortgage finance this year found doing so more difficult, with a further 6 per cent seeing their application rejected altogether.
To combat these headwinds, landlords have been running properties via limited companies to reduce tax and offset finance costs against rental profits.
Kent Reliance’s data shows six in ten applications for buy to let mortgages were via limited companies in 2016. With one in four landlords (24 per cent) considering transferring their portfolio to a limited company or a partner or spouse, demand will strengthen in the long term.
Landlords are also increasing rents to cover higher costs. Average rents per property now stand at £889 per month across Great Britain. Even though the rise was less steep than a year ago, the typical rent increased 1.9 per cent annually. This is likely to continue as the mortgage tax changes bite.
One third of landlords expect to raise rents in the next six months, compared to just 3 per cent who expect them to fall. With rents rising, and house prices falling in the past two quarters, yields have edged up to 4.5 per cent.
Steady growth in the number of households and monthly rents means landlords are collecting a record £4.9bn per month in rent.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, said: “A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence.
"On top of this, investors are now being buffeted by the winds of political uncertainty following the election, and its impact on the economy.
“Uncertainty will pass, but the impact of changes to mortgage tax relief and underwriting standards will leave a more indelible mark on the sector.
"We believe these changes will alter the mix of landlords, creating a more professional and stable sector in the long term. There are already some signs of consolidation, with highly geared amateur landlords most likely to leave, and we are also seeing investors take action to protect their margins."
Michael O’Brien, a mortgage adviser and director of Access Financial Services, said the findings of the research reflect what he has been hearing from clients.
“I had that exact same conversation with a landlord the other day, he wanted to raise £300k to buy a property but he had no confidence in the market and felt there was too much that could go wrong.
"There is a perfect storm, but is that outweighed by the innate desire to own more than one property? I would say no. There will be a dip but the desire to own buy to let will continue.” He added the trend to buy property through limited companies has “exploded”, but buying it this way will not be the best strategy for everyone."
