There has been a modest improvement in optimism amongst landlords as they begin to take action ahead of changes to tax relief, new reasearch shows.
According to Paragon Mortgages, 22% of landlords surveyed are now more optimistic as they come to terms with the impending tax relief changes.
While the majority (65%) of landlords report no change in sentiment, 12% still said that compared with three months ago they are now more pessimistic, down from 18% three months ago.
The most commonly reported actions have been to increase the rent charged to cover some or all of the increased cost (24%), to maintain their current properties but not buy any more (21%) and to sell some of their properties and not buy any more (16%).
As a result, buying intentions – which remain some way off their peak – are slightly improving, with 13% expecting to purchase buy-to-let property in the next quarter, up from 11% in the third quarter.
A higher proportion (17%) of landlords expect to sell, down from 21% three months ago.
Tenant demand remains high, with 94% of landlords describing the market as stable or growing, and fewer than one in 30 suggesting a decline.
Mortgage interest relief for residential buy-to-let properties is set to be reduced to the base income tax rate, which is 20%.
It is due to be phased in over a four-year period starting from April. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Paragon’s latest Private Rented Sector Trends report is based on interviews with a panel of more than 200 experienced landlords.
John Heron, managing director Paragon Mortgages, said: “We’ve reached a critical time for landlords looking to plan ahead and this is reflected in the Q4 report. It’s clear that landlords’ understanding of the changes has improved and that more landlords are developing a clear strategy to address the impact of the changes.
“However, despite increasing optimism, we must remain cautious. The changes have not started to be implemented yet and the full impact will not be felt for many years. Whilst it is predictable that landlords will seek to increase rents in response to higher costs this clearly will not be good news for tenants, particularly those that are already struggling to save for a deposit.”
