Buy-to-let landlords increasingly optimistic

Just 1 in every 100 landlords believes it is now a good time to reduce their portfolios.

In fact 86% of landlords polled by LSL Property Services are planning to maintain or expand the size of their portfolios over the next 12 months.

Growing demand for rental accommodation is the main reason for the increase in confidence.

Around 185,000 fewer first-time buyers entered the property market in the last 12 months compared to the level before the downturn and the vast majority are remaining in the private rental sector instead.

As a result, in the past three months, 52% of landlords have seen a rise in tenant demand and 68% expect demand to grow further in the next 12 months.

David Newnes, estate agency managing director for LSL Property Services, said: "Optimism among landlords is not only buoyant, but increasing. Soaring rents and climbing demand from frustrated first-time buyers are not only making buy-to-let an attractive proposition for new property investors – but are encouraging existing landlords to grow their holdings before property prices increase once more."

Increasing rental income has improved financial security for long-term investment.

The latest LSL Buy-to-Let Index showed that rents now equal their all-time high of £692 per month. As a result, landlords with mortgage finance have an average of £274 in rental income a month after mortgage payments – £3288 per year.

This means that even if interest rates increase by 3.25%, landlords’ current rental income would be big enough to absorb the increase in the cost of a tracker mortgage on the average buy-to-let property.

Newnes said: "Following the winter downturn, rising rental incomes are adding an increasing financial buffer for landlords. Landlords are taking a healthy sum once the
mortgage has been paid each month. Many are taking the opportunity to either pay down their mortgage or expand their portfolio – or are using the opportunity to build slush funds for rainy days or future higher mortgage costs.

"With the Bank Rate forecast to remain below 2% until at least the end of next year, landlords can expect to see rental payments rise without facing the burden of higher mortgage payments."

However, the principal obstacle to expanding the private rental sector is ongoing mortgage finance constraints.

Some 54% of landlords who have recently attempted to raise mortgage finance think it is more difficult to secure than a year ago. It’s no surprise that of landlords who bought property in the past year, 48% were cash buyers.

However, there is some evidence that this situation may be starting to ease, with an increased number of new buy-to-let products on the market in recent weeks. As a result, while just 8% of landlords who recently secured a mortgage believe it is easier to obtain mortgage finance now than a year ago, this is an increase from the 5% of landlords who said the same a year ago.

Newnes said: "The buy-to-let mortgage market is not going to spring back to its pre-downturn level in the foreseeable future, but there are signs that it is picking up slightly
for investors. There is still a chronic lack of supply of rental homes, and it is crucial that lending criteria loosen to encourage professional investors into the market to grow the private rental sector."

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