Most landlords in the private rented sector are still seeing a profit despite recent regulatory changes, a new report has claimed.
In the quarterly panel report from Birmingham Midshires Solutions (BMS), 88% of landlords surveyed say they will still make money despite slips in confidence in the overall market picture. However, those with larger portfolios are not feeling as secure as they once did, with three-quarters of those with 11 to 19 properties saying their profitability has gone down.
Larger portfolios to be reduced in 2019?
Just under a quarter (23%) of landlords say they intend to sell at least one property this year, but those in the 11-19 portfolio bracket are twice as likely to sell in 2019. Just 15% of all landlords are planning to buy this year.
There have been a number of regulatory changes made in recent years that are beginning to have an effect. Since April 2017, how rental income is declared has changed, resulting in significant tax implications for landlords.
Mortgage interest tax relief is set to reduce each year until April 2020; landlords can claim 50% of their mortgage tax relief but this reduces to 25% in the 2019/20 financial year, before the introduction of the new tax credit in April 2020 when they will no longer be able to deduct any mortgage expenses from rental income.
The stamp duty surcharge introduced in 2016 made property investment pricier for many, with an extra 3% tax liable on all additional home purchases not intended for owner-occupation,
Research by Foundation Home Loans in 2018 revealed that three out of five landlords plan to persevere in the buy-to-let market for another six or more years, while portfolio landlords in particular are the most likely to be planning on continuing to operate in the long-term and expanding their property stock.
Different picture from different regions
The research by BMS also shows regional variations in how landlords feel about the current state of play. Tenant demand was up by 8% in the East Midlands, and by 6 in the north-west and south-west of England but fell by 11% in London. At 5.6%, rental yields are at their lowest for three years but with 88% of landlords turning a profit there is some cause for optimism.
Phil Rickards, Head of BM Solutions, said: “This quarter’s Landlord Panel research paints a more cautious picture from the last quarter when landlords did not experience any financial difficulty.
“The buy-to-let industry has been through many regulatory changes over the past few years, and the effects of this are clearly being felt.
“However, the landscape is not entirely bleak. The proportion of landlords making a profit from their lettings activity remains at 88%, equalling the record high seen in quarter three 2018.”
“It is clear that the market is sensitive to the current legislative and macro-economic environment and this has been reflected in the latest findings.”
