Landlords in the UK are taking action ahead of mortgage relief tax changes due to come into force in April and more are optimistic about the outlook for the private rented sector.
Six out of 10 landlords are preparing for the tax change and more are willing to buy with fewer thinking about reducing their investment portfolios, according to the latest trends report from Paragon Mortgages.
Despite turbulence following announcements from the Government in 2015 that tax relief on buy to let mortgage interest would be reduced and stamp duty increased, some 22% of landlords surveyed are now more optimistic as they come to terms with the impending changes.
While the majority, 65%, of landlords report no change in sentiment, 12% still said that, compared with three months ago, they are now more pessimistic, down from 18% three months ago.
The report says that this coincides with rising levels of awareness about the implications of the tax relief changes, with the policy due to be phased in from April 2017, as 58% of landlords reported having already taken, or are making plans to take, action ahead of time.
The most commonly reported actions have been to increase the rent charged to cover some or all of the increased cost with 24% planning to do so while 21% plan to maintain their current properties but not buy any more and 16% plan to sell some of their properties and not buy any more.
As a result, buying intentions, which remain some way off their peak, are slightly improving, with 13% expecting to purchase buy to let property in the next quarter, up from 11% in third quarter of 2016. While a higher proportion of landlords expect to sell at 17%, this is down from 21% three months ago.
As is expected in the current landscape, 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.
‘We’ve reached a critical time for landlords looking to plan ahead and this is reflected in the 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,’ said John Heron, managing director of Paragon Mortgages.
‘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,’ he added.