Buy-to-letAug 7 2017

Landlords’ confidence in rental yields falls

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Landlords’ confidence in rental yields falls
BySimon Allin

Landlords are losing confidence in their ability to rely on steady rental yields as they feel the impact of the higher buy-to-let tax burden.

Less than half of landlords (49 per cent) are now optimistic about their ability to rely on a steady rental yield - down from 64 per cent in the second quarter of 2015, according to the National Landlords Association (NLA).

The decline has taken place since then-chancellor George Osborne announced in July 2015 that mortgage interest relief would be removed for landlords.

But rental yields across the UK have remained fairly stable at around the 6 per cent mark over the past few years.

Landlords in outer London generate the lowest yields at 5 per cent, while those in the East Midlands enjoy the highest at 6.9 per cent.

Richard Lambert, chief executive of the NLA, said: “Average rental yields have remained fairly stable over the past few years, yet there is a steady increase in landlords losing confidence in their ability to make a profit from letting property.

“This perception probably exists because many will now be feeling the impact on their businesses of greater taxation and the costs of complying with regulation, which are eating away at their profits and making it harder to provide homes.

“Like any business, the increasing value of the capital assets on your balance sheet will be of little help if you are treading the fine line between profit and loss, especially if you can’t keep up your mortgage payments in the short term."

In May research showed that as many as one in five landlords planned to increase rents to cope with the government’s BTL tax shake-up.

It was followed by news from the Association of Residential Letting Agents revealing rental hikes hit a 14-month high in June.

Mike Richards, director at London-based Mortgage Concepts Associates, said he thought landlords were losing confidence because they could not necessarily refinance.

“It is a big reason for losing confidence,” he said. “They can’t do a fourth, fifth, or sixth buy-to-let, then there is the extra stamp duty, then they come under new portfolio landlord rules, and in some cases rents are coming down.

“It is killing the market and causing people to worry about the whole market – the yields they are getting and so on, particularly if they are major-city bound or London bound. In other places, like Cardiff or Hull, you are fine.

“I think there is still a good market, so long as you are quite adventurous, you hold your nerve and you are in it for the long run.”