Research by Pegasus Insight has revealed an overall sentiment of pessimism among landlords.
According to a report by the mortgage market specialist, despite the fundamentals for the private rented sector (PRS) remaining strong – with strong tenant demand, average yields reaching a 10-year high and the majority of landlords making a profit on their properties – most landlords are downbeat.
The Landlord Trends report for Q3 2024 found that most consider the new administration to be anti-landlord, with 91% saying the Labour government will be negative for landlords.
Major concerns include CGT changes
The primary concerns cited were potential increases in taxes and costs – likely fuelled by the speculation surrounding potential capital gains tax (CGT) changes in the upcoming Budget – anti-landlord bias in policy, and loss of control over property and tenant selection.
Specifically, landlords were most concerned about changes to CGT, with 85% citing this, followed by rent cap introduction (79%), the removal of Section 21 ‘no-fault’ evictions (73%), mandatory landlord licensing (54%) and the requirement for properties to reach an Energy Performance Certificate (EPC) rating of C (51%).
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Some 39% of landlords said they would not invest further in the PRS if the government introduced significant changes or reduced allowances on CGT. This rose to 48% of landlords with four or more buy-to-let (BTL) properties. Almost two in 10 would sell all their properties and exit the market, 16% would sell some properties and 21% would consider selling some.
Additionally, 26% of landlords said they would increase rents to offset potential losses should the CGT rules change.
Just 6% of landlords said they had plans to expand their property portfolio next year, and 41% said they intend to sell property in 2025. Leveraged landlords with outstanding BTL mortgages are more inclined to sell (at 46%) than those who own outright (at 34%).
Landlords with the largest portfolios are the likeliest to divest themselves of some properties, with 59% of landlords with 20 or more units saying they plan to sell.
The primary drivers of selling are concerns about potential rental reforms, a general lack of confidence in the PRS, potential tax structure changes, interest rates and the threat of EPC changes.
‘It is crucial that this government offers reassurance’
The feeling of pessimism prevails in spite of many positive fundamentals, including 79% of landlords reporting strong tenant demand in areas where they let. Further, the upward trend in rental yields continues, reaching a 10-year high of 6.5% on average. Also, some 70% of landlords said they are making a small profit on their rental property, and 17% are managing to turn a ‘large’ profit.
Mark Long, founder and director of Pegasus Insight, said: “This research reveals the depth of concern over the attitude and potential actions of the new government when it comes to the treatment of landlords. This concern is all the more striking given the strong evidence that the sector is in fact thriving, despite the challenging environment it has recently weathered.
“The Chancellor would be wise to heed the warning that imposing a heavier CGT burden on landlords could result in quarter of them increasing rents immediately and a sizeable reduction in the number of properties in the PRS in the near term, leading to yet more rent rises as the supply/demand imbalance worsens over the longer term.
“The PRS is vital to the housing needs of the nation, and it is crucial that this government offers reassurance and support to the landlords who provide homes for almost 20% of our population. Let’s hope this week’s Budget provides landlords with more reasons to be cheerful and confident in the government’s approach for our Q4 report on landlord trends.”
