Landlords are now thinking ahead to mitigate tax relief changes as Paragon Mortgages says 60% of landlords are aware of the implications of the changes and are taking action.
There are now more landlords willing to buy and fewer expecting to sell as landlords’ optimism shows a modest improvement, that’s according to Paragon Mortgages’ latest Private Rented Sector (PRS) Trends report. Their report is based on interviews with a panel of more than 200 experienced landlords.
Despite the shocks and turbulence following announcements from the Government in 2015 that tax relief on buy-to-let mortgage interest would be reduced and stamp duty increased, 22% of landlords surveyed are now more optimistic as they come to terms with these changes. The vast majority (65%) of landlords report no change in their sentiment to buy-to-let, 12% still said that, compared with three months ago, they are now more pessimistic, a figure which is down from 18% three months ago.
There is evidence that there is a rising level of awareness of the implications of the tax relief changes. The new policy due to be phased in from next April (2017). 58% of landlords reported having already taken, or are planning to take, action ahead of this time.
The most commonly reported strategy is to increase the rent charged to cover some or all of the increased cost (24%), to maintain their current number of properties but not buy any more (21%), or to sell some of their properties and not buy any more (16%).
Buying intentions therefore, which will remain some way off their peak, are improving slightly, with 13% expecting to purchase more buy-to-let property in the next quarter, up from 11% in Q3. While a higher proportion (17%) of landlords expect to sell, this is 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. Tenant demand continues to impact average void periods, which remain unchanged at 2.7 weeks.
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.
“The PRS is facing the prospect of a great deal of change as a result of the significant shift we have seen in fiscal and regulatory policy. Some landlords are responding to this uncertainty by planning fewer new purchases and investing in their existing portfolios. At the same time credit profiles are very robust and improving, a picture that is somewhat at odds with the picture being painted in some quarters. If landlords materially reduce investment, those that have to rely on the PRS for a home could be hit quite hard. It may well become even more difficult and expensive to rent a home with no obvious commensurate benefit to homeowners.”
See the full PRS Trends Q4 2016 Report
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