UK property landlord confidence dented slightly by tax hikes and lack of finance, a survey shows

Good time to invest due to lack of lending in UK property market

Slightly fewer private rented sector landlords in the UK think it is a good time to invest with lack of lending for property the main obstacle, a new report shows.

Some 42% of landlords think it is a good time to invest, down from 48% three months ago, according to the latest confidence survey from LSL Property Services.

Although just 2% believe now is a good time to reduce their portfolios, the survey reveals that mortgage finance remains tight and the recent Capital Gains Tax increase could cost average landlord an extra £11,400.

Despite this a third, 32%, of landlords polled by are likely to expand their portfolio in the coming twelve months. The number of landlords considering leaving the sector has risen by 6% in the past three months to 19%. This figure also includes investors who are leaving the market through retirement or lifestyle reasons.

The survey evidence is supported by LSL’s latest buy to let index, which reported the drop in total annual returns from 13.2% in April to 10.1% in July. And due to recent levelling off of house prices, an investor buying property now could expect a total annual return of 3.5%, the equivalent of £5,838, if conditions remain the same for the next year.

‘Rising rents and house prices offered landlords bumper annual returns at the start of the year and this was reflected in the surge in confidence. This has fallen slightly following the slowdown in house prices and the capital gains tax hike,’ said David Newnes, estate agency managing director of LSL, owner of national chains Your Move and Reeds Rains.

‘But the vast majority of landlords remain committed to buy to let. Attractive rents, just £12 per month shy of their peak, and increasing yields underpin their confidence in property investment,’ he added.

Growing tenant demand is helping to cushion slowing capital gains with 37% of landlords have witnessed an increase in tenant demand and one in ten landlords reporting a substantial growth. Just 7% of respondents saw a decline.

The report also shows that 63% of landlords expect this increase in demand to continue in the next two years compared to the one in twenty landlords who anticipate demand will fall away.

Although landlords recognised the slight improvement in buy to let lending in the past quarter, just one fifth of respondents, 21%, mentioned the availability of cheap finance as a positive factor, an increase of 8% compared to the previous quarter.

‘Mortgage finance remains a daunting obstacle for those looking to get a foot on the property ladder. This is keeping thousands of frustrated buyers in rented accommodation, pushing up tenant demand and rents. But borrowing remains a thorn in the side of potential investors too. Despite a slight easing in lending in the last quarter, mortgage finance constraints are hitting landlords. Funding conditions remain tight for lenders, and lending to landlords won’t loosen significantly in the next two years,’ explained Newnes.

The introduction of a higher CGT for higher band tax payers is a driving factor behind the slight fall in landlord confidence, the report also found with 34% of landlords who saw the current market as attractive for investment saying property still offers better capital returns than other investments, a drop of 7% since the last quarter.

The average property investor owns three properties, and has seen capital gains of £152,219 since they bought their properties. If they sold their properties today, they would face a capital gains tax bill of £39,793, an increase of £11,369 from the previous tax regime.

Landlords with just one property have made average capital gains of £75,111. If they sold their properties now, the average single property landlord would face a tax bill of £18,203, an increase of £5,201 compared to before the budget.

‘The increased CGT hit many property investors’ confidence and it will hit many more in the pocket over the next few years. But the hike wasn’t as steep as first feared, and we’re already seeing landlords adapt their disposal strategies for their portfolios, planning to spread sales over several tax years to mitigate their exposure to the higher rate,’ said Newnes.

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