Confidence in buy-to-let remains robust

Nia Williams

August 24, 2010

According to the research, 42% of landlords believe now is a good time to invest in property, a slight drop from LSL’s last sentiment survey in Q1 2010 (48%). However, just 2% believe it is now a good time to reduce their portfolios.

One third (32%) of landlords polled by LSL Property Services plc are likely to expand their portfolio in the coming twelve months. The number of landlords considering leaving the sector has risen by 6% in the past three months to 19%. This figure also includes investors who are leaving the market through retirement or lifestyle reasons.

The survey evidence is supported by LSL’s latest Buy-to-Let Index, which reported the drop in total annual returns from 13.2% in April to 10.1% in July. And due to recent levelling off of house prices, an investor buying property now could expect a total annual return of 3.5%, the equivalent of £5,838, if conditions remain the same for the next year.

David Brown, managing director of LSL Corporate Client Department, commented: “Rising rents and house prices offered landlords bumper annual returns at the start of the year, and this was reflected in the surge in confidence. This has fallen slightly following the slowdown in house prices and the capital gains tax hike.

“But the vast majority of landlords remain committed to buy-to-let. Attractive rents – just £12 per month shy of their peak – and increasing yields underpin their confidence in property investment.”

Growing tenant demand is helping to cushion slowing capital gains. 37% of landlords have witnessed an increase in tenant demand, with one in ten landlords reporting a substantial growth. Just 7% of respondents saw a decline. 63% of landlords expect this increase in demand to continue in the next two years, compared to the one in twenty landlords who anticipate demand will fall away.

Although landlords recognised the slight improvement in buy-to-let lending in the past quarter, just one fifth of respondents (21%) mentioned the availability of cheap finance as a positive factor for buy-to-let investment – an increase of 8% compared to the previous quarter.

According to the latest CML statistics, the number of buy-to-let loans increased 13% in the last quarter, compared to Q1. However, the number of loans is still 72% lower than in the same quarter in 2007.

David Brown continued: “Mortgage finance remains a daunting obstacle for those looking to get a foot on the property ladder. This is keeping thousands of frustrated buyers in rented accommodation, pushing up tenant demand and rents.

“But borrowing remains a thorn in the side of potential investors too. Despite a slight easing in lending in the last quarter, mortgage finance constraints are hitting landlords. Funding conditions remain tight for lenders, and lending to landlords won’t loosen significantly in the next two years.”

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