Confidence amongst landlords is stabilising following government intervention in the buy-to-let market.
According to Paragon Mortgages, 41% of landlords rated their prospects in the next three months as being either good or very good. This is 2% down on the final quarter of 2015, indicating that falling levels of confidence may have stabilised.
More landlords are also looking to buy rather than sell, reversing the situation seen at the end of last year.
Nearly a fifth (19%) of landlords indicated that they intend to purchase a property in the coming year, up from 17% in the final quarter of 2015. Meanwhile, 16% of landlords indicated that they intend to sell a property, down from 19% in the previous quarter.
John Heron, director of mortgages at Paragon, said: “Increased stamp duty, as well as reduced levels of income tax relief for landlords due to come into force next April, have undoubtedly impacted landlord sentiment. Confidence by some measures is down by around a third when compared to the same period last year. That said, this data does suggest that confidence is stabilising.
“In the previous quarter we saw more landlords respond very negatively to the announcements on stamp duty and tax on rental income with more intending to sell rather than buy property, this trend is now reversed and purchase intentions have risen. Likewise, although confidence remains low, the significant falls we have seen in previous quarters have abated.
“The main driver of this recovery remains, as ever, tenant demand, which has risen in Q1 2016 along with yields. Landlords are clearly taking the view that buy-to-let remains an attractive long-term, demand driven investment, which continues to outperform other asset classes.”
The buy-to-let market has surged in recent years, with investors attracted by cheap mortgages, low interest rates and rising rents.
In April a 3% stamp duty increase was introduced as part of the government’s attempt to curb the buy-to-let market and free up property for first-time buyers. In the run up to the stamp duty hike there was a boom in borrowing as buyers brought forward transactions to beat the deadline.
The basic rate of tax relief landlords can claim on properties is also set to fall to 20% from April 2017.
Residential property sales and mortgage approvals have plummeted since the hike. According to HM Revenue and Customs, residential property transactions in April were 45% down on the previous month. Meanwhile, the British Bankers’ Association said there were 40,104 mortgages approved for house purchase in April, down from 43,854 in March.
According to the latest research from the National Landlords Association, six in 10 landlords report that the Chancellor’s decision to remove mortgage interest relief from 2017 will reduce their profitability.
In order to recover costs, one in five of those landlords say they will need to prioritise other tenant types over those perceived to be riskier – such as tenants in receipt of housing benefit.
