Rising tenant demand drives confidence in buy-to-let

Rising demand from tenants is driving landlord confidence in UK buy-to-let, reveals new research.

The sector has been hit hard by the government’s clampdown on buy-to-let in the last year. Following an increase in the rate of stamp duty payable on buy-to-let purchases, and with a staged reduction in income tax relief due to start next year, landlord confidence was understandably low in Q1 2016, according to a survey by Paragon Mortgages.

Asked about expected business in the next three months, 41 per cent of landlords rated their prospects as being either “good” or “very good”. This is down from 65 per cent during the same period last year, prior to the government’s range of measures against the sector.

The income tax relief change, in particular, has been met with strong response from the industry.

The tax change, which will stop landlords from deducting their mortgage interest from rental income before calculating their tax bill, is expected to see many smaller landlords around the UK struggle to make any profit, forcing them to sell up or raise rents, both moves that would spell bad news for tenants.

In response, a campaign (dubbing the change a “Tenant Tax”) was launched by Steve Bolton and Chris Cooper at the end of last year, aiming for a judicial review of the unfair law. The campaign’s crowdfunding scheme has already raced past its £60,000 mark, surpassing the record £50,000 raised by the campaign’s first fundraising scheme.

Confidence in buy-to-let is stabilising, though, according to Paragon, with the 41 per cent figure from Q1 2016 only 2 per cent lower than Q4 2015. The first three months of this year also saw more landlords (19 per cent – up from 17 per cent) planning to buy property than sell (16 per cent – down from 19 per cent) in the coming year, suggesting that the basic fundamentals of the asset class remain attractive in the long-term.

Indeed, Q1 2016 saw 39 per cent of landlords report either slightly or significantly rising tenant demand, up from 34 per cent in Q4 2015. Yields in Q1 2016 also grew slightly on the previous quarter, averaging 5.7 per cent.

John Heron, Director of Paragon Mortgages, comments: “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.”

The sentiment is also positive in the camp for the legal campaign to overturn next year’s tax change. This Thursday (9th June), a “Tenant Tax” summit takes place in London to raise further awareness of the tax change and what can be done to fight it.

“Right from the beginning, we asked HMRC and the Treasury to show us the impact on tenants,” Steve Bolton told us in an exclusive interview. “So far, we have been provided with nothing that shows the government has done any form of analysis of how this is going to affect rents and tenants and that sort of thing. It’s completely shocking. 9 million people live in private rented accommodation.”

“Most tenants think landlords are making loads of money and that’s not the case,” he added. “The millionaires with the massive property portfolios, they’re in the minority. Mostly, its average, hard-working buy-to-let landlords who have got one, two, three or four properties.”

For more on the Tenant Tax campaign and summit, visit www.tenanttax.co.uk, or read our full interview here.