One of the recent headlines that came out of the research we commissioned Pegasus Insight to conduct into landlord borrowers and their portfolio intentions was around divestment and whether they have plans to purchase in the immediate future.
Clearly, existing landlords, and the properties they present to the private rental sector (PRS), are absolutely vital in terms of getting anywhere near to meeting the demand, and will have a direct consequence for rents.
As we’re all acutely aware, as demand has outstripped supply, rents have risen – often substantially – and any further cuts to the number of properties available would continue to send rental monthly payments in the same direction. Just recently, rents have seemed to stabilise slightly, which is clearly good news for tenants, but that could change.
When asked about their portfolio intentions, a considerable 40% said they were looking to scale back their lettings activity – the highest figure we’ve ever seen – while only 6% said they were looking to increase the size of their portfolio, which also happens to be the lowest.
At the same time, nine in 10 of all landlords surveyed said they felt the Labour government would be negative for landlords, and one wonders if that will shift anytime soon. I would suspect not in the near future.
However, while these figures could be seen as somewhat alarming, we have to consider timing in all of this.
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A stressful period for landlords
We must bear in mind these landlords were surveyed through September and early October, when many will have been wondering just what the Budget had in store for them.
Indeed, there was a growing narrative through that period – which only intensified the closer we got to the Budget – that the new government was likely to change the capital gains tax (CGT) rules to move them into line with an individual’s income tax. In other words, landlords would be paying more CGT as a result of selling properties.
I suspect this was playing heavily on the minds of existing landlords – particularly, and obviously, for those who own properties in their individual names, who would have been deeply impacted by such a move.
However, as we know, the government decided not to make this amendment – instead focusing on raising taxation via property-buying landlords through the stamp duty hike. While this was obviously not a welcome move, in the grand scheme of things, we might all think it was preferable to the CGT alternative.
Acting with certainty
Now that we have ‘full disclosure’ post-Budget, it will be interesting to see how this might shift landlords’ views, particularly on divestment.
I can believe that many landlords in September were thinking that any CGT hike would not be introduced until the next tax year, which might have given them time to sell under the old rules rather than any new ones.
But, as we know, this danger appears to have passed – at least for now – and I would be somewhat surprised to see the government considering this again in the medium term.
It provides more certainty for landlords who might not feel the need to divest so quickly, and while the stamp duty change technically increases costs, they can mitigate against this by, for example, seeking lower-priced properties/renegotiating offers, etc., ensuring they can still benefit from strong demand and the subsequent healthy yields available.
Especially if we do see rates inch down further in the months ahead. Again, we’ve had some Budget-induced spikes, but the Office for Budget Responsibility’s (OBR’s) own prediction for rates is on downward trajectory, and there will be plenty of landlord borrowers coming to the end of their deals in 2025 who can either save money compared to their last mortgage, or will not feel as big a hit as they might have done should they have had to encounter the rates available from a couple of years ago.
Overall, we cannot underestimate the positives that certainty brings – even if rates feel less than certain at this moment in time – and knowing what we do allows landlords to plan and prepare in a way they simply were not able to during September and October.
Existing landlord borrowers are clearly a major business opportunity for advisers, and with a considerable amount of business coming up for renewal through 2025, there will be many looking to remortgage to better deals and, where appropriate, to make the most of the equity they have to take the opportunities that do exist to purchase.
Advisers should ensure they are front of mind for those landlords as they seek advice and guidance on what to do next now that the government has had its say.
