Landlords returning to market following ‘stamp duty malaise’

A "stamp duty imspired malaise" is finally easing with landlords looking to buy more property, according to research from BDRC Continental on behalf of Paragon Mortgages.

BDRC surveyed more than 1,000 private rented sector landlords and found that while confidence remains low among landlords as a result of recent government interventions in the buy-to-let market buyers are returning to the market.

Following an increase in the rate of stamp-duty payable on buy-to-let purchases, and with a staged reduction in income tax relief available on rental income due start next year, landlord confidence remained low in Q1 2016.

Asked about expected business in the next three months, just 41% of landlords rated their prospects as being either ‘good’ or ‘very good’. This is down from 65% during the same period last year, prior to the government’s clampdown on buy-to-let. Indicating that falling levels of confidence may have stabilised however, the figure is just 2% down on Q4 2015.

Reflecting this, Q1 2016 also saw landlords’ property purchase intentions edge above selling intentions, reversing the situation seen in Q4 2015 when more landlords were looking to sell property than were looking to buy. Nearly a fifth (19%) of landlords indicated that they intend to purchase a property in the coming year, up from 17% in Q4 2015. 16% of landlords indicated that they intend to sell a property, down from 19% in the previous quarter.

Driving this trend, Q1 2016 saw an increase in tenant demand, with 39% of landlords reporting demand as increasing either slightly or significantly, up from 34% in Q4 2015. Reflecting this increase, landlords reporting tenant demand as being stable declined from 40% to 36%. Yields in Q1 2016 also grew slightly on the previous quarter, averaging 5.7%.

Despite negativity persisting around business expectations over the short-term, rental property as an asset class is still viewed favourably by landlords. 38% of landlords polled believe investing in the PRS to be ‘much better’ than other investment options such as stocks and shares. A further 33% believe investing in the PRS to be a ‘little better’ than other investments and just 10% believe an investment in the PRS is worse than other investments.

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.”