"The appetite for buy-to-let hasn't disappeared, but we need an environment that encourages landlords to put additional capital into the sector."
- Marc von Grundherr - Benham & Reeves
The latest research from Benham & Reeves has found that 50.6% of landlords still believe residential property remains a good long-term investment despite increased regulation, with 62.7% intending to maintain their current portfolio over the next year.
However, just 3.9% plan to expand, with landlord taxation ranking as both the biggest barrier to further investment and the number one change that would encourage landlords to invest again, ahead of the Renters’ Rights Act, wider legislation and property prices.
13% intend to reduce their holdings and a further 14.2% plan to exit the rental market entirely. This means that 27.2% of landlords are currently planning to either reduce their portfolio or leave the sector altogether, seven times the proportion planning to expand.
Of those landlords considering expansion, long-term retirement and investment planning is the primary motivation, cited by 43.7%, followed by strong tenant demand at 17.2%, the belief that property currently represents good value at 16.1%, and expectations of house price growth at 11.5%.
Overall, 78.5% believe being a landlord today is a less attractive investment proposition than it was five years ago, with 51.9% saying it is much less attractive. Just 2.7% believe that being a landlord has become more attractive over the same period.
In terms of the state of the private rental market, 39.1% of landlords say they are either somewhat or very unconfident about its long-term future, compared to 33.9% who remain confident.
38.9% also expect the profitability of their buy-to-let portfolio to decrease over the next 12 months, more than five times the 7.6% who expect it to increase. A further 45.8% expect profitability to remain unchanged.
For those landlords who are considering investing, the traditional residential single-let remains by far the most attractive option, favoured by 48.2%. Properties requiring refurbishment rank second at 18.3%, followed by holiday or short-term lets at 11%.
HMOs (5.5%), student accommodation (4.3%), corporate lets (3.7%), and new-build properties (3.7%) account for considerably smaller proportions of landlord investment appetite.
"Despite years of headlines predicting the demise of the private landlord, the reality is that buy-to-let remains an incredibly strong long-term investment and, importantly, half of landlords themselves still believe this to be the case," Marc von Grundherr, director of Benham & Reeves, said.
"The issue isn't that landlords have lost faith in property. Almost two-thirds intend to maintain their existing portfolios and, amongst those looking to expand, long-term investment planning is by far the most common motivation.
"The problem is that the environment in which landlords are being asked to operate has become substantially less attractive. Almost eight in 10 believe being a landlord is less attractive than it was five years ago and, as a result, very few are currently prepared to increase their exposure.
"It's particularly telling that taxation ranks well ahead of the Renters' Rights Act when it comes to the biggest barrier preventing further investment. Regulation has understandably dominated the conversation recently, but landlords have also faced a sustained increase in the financial burden placed upon them and our survey suggests this is having the greatest impact on investment appetite.
"The government should pay particular attention to the fact that more favourable taxation is also, by some distance, the most common change landlords say would encourage them to invest again.
"Rental demand remains extremely strong and the traditional residential rental property remains the preferred choice for those looking to expand. The appetite for buy-to-let hasn't disappeared, but we need an environment that encourages landlords to put additional capital into the sector.
"Without this investment, rental supply will remain constrained and, ultimately, it will be tenants who suffer through greater competition and continued upward pressure on rents."
