Buy-to-let investors reveal what would tempt them back into the market

Many private landlords remain committed to buy-to-let, but few plan to expand their portfolios over the next year, new research suggests.

A survey commissioned by London-based Benham and Reeves found that 50.6% still view residential property as a good long-term investment.

Almost two-thirds (62.7%) plan to maintain their existing portfolio over the next 12 months. However, just 3.9% intend to buy more rental properties.

By contrast, 13% expect to reduce their holdings. A further 14.2% plan to leave the rental market altogether.

That means 27.2% intend to either sell some properties or exit the sector. This is seven times the proportion planning to expand.

Confidence in the wider private rented sector remains relatively weak.

Some 39.1% of landlords feel either somewhat or very unconfident about its long-term future. This compares with 33.9% who remain confident.

Landlords also expect pressure on profitability to continue.

Some 38.9% expect their buy-to-let profits to fall over the next year. Just 7.6% anticipate an increase, while 45.8% expect little change.

More than three-quarters (78.5%) believe buy-to-let is less attractive than five years ago. More than half (51.9%) describe it as much less attractive.

Just 2.7% believe becoming a landlord has grown more attractive over that period.

Taxation emerged as the biggest obstacle to further buy-to-let investment.

Some 28.3% identified landlord taxation as the main factor preventing them from investing more.

The Renters’ Rights Act and wider regulation followed at 15.1%. Property prices ranked third at 12.6%.

Economic uncertainty was cited by 9.8%. Problem tenants or rent arrears concerned 8.6%, while 6.8% identified Stamp Duty.

Mortgage rates and finance costs accounted for 6.2%.

Tax changes could also have the greatest influence on future investment, the study suggests.

More than a third (36.9%) said more favourable landlord taxation would encourage them to buy additional properties.

Lower stamp duty followed at 13.7%. A faster or easier possession process was cited by 12%.

Greater economic confidence attracted 11.6%, while 9% identified lower property prices.

Among landlords considering expansion, retirement and long-term investment planning remain the main motivation.

Some 43.7% cited this reason. Strong tenant demand followed at 17.2%.

Another 16.1% believe property currently offers good value. Expectations of house price growth motivated 11.5%.

Traditional single-let properties remain the preferred investment.

Almost half (48.2%) of landlords considering further investment favour conventional residential single-lets.

Properties requiring refurbishment ranked second at 18.3%. Holiday and short-term lets attracted 11%.

HMOs accounted for 5.5% of investment preferences, followed by student accommodation at 4.3%. Corporate lets and new-build homes each attracted 3.7%.

Marc von Grundherr, director of Benham and Reeves, commented: “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.

“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.”