Heavyweight landlords look set to take advantage of the improving buy-to-let market, according to the latest landlord sentiment survey conducted by LSL Property Services.
The survey showed 28 per cent of landlords polled intended to expand their portfolio in the next year. Landlords with five or more properties, are more likely increase their involvement in the private rental sector with four in ten saying they expected their portfolios to grow, compared to 26 per cent of smaller scale landlords with five properties or under.
Overall, just under half of landlords believe now is good time to invest in property, remaining consistent with the response of January’s sentiment survey. Just two per cent believe now is a good time to sell their properties.
The poll showed 46 per cent of larger scale landlords have witnessed growing tenant demand, compared to 37 per cent of smaller scale investors. Only seven per cent of all respondents saw a decline, while 64 per cent believe tenant demand will grow in the next 12 months.
David Brown, commercial director of LSL Property Services, said: “Optimism is flooding back into the buy-to-let market. Underlying factors like tenant demand continue to improve, despite the doubling of the stamp duty threshold for first-timers. With total annual returns hitting 13.3 per cent, many potential investors are looking at property as a lucrative long-term venture.”
Mortgage financing remains the primary obstacle to investment with just a quarter of large-scale landlords able to raise mortgage finance against 11 per cent of small-scale landlords. According to the CML, in 2009, there were only 93,500 buy-to-let mortgages – just over a quarter of 2007 levels. Nearly two-thirds found it harder than three years ago – with 28 per cent stating it was much more difficult. In contrast, one in ten of all respondents had bought properties with cash in the past year.
Brown said: “Undeniably, the difficulty in obtaining mortgage finance is holding back investment in the private rental sector. Over 90 per cent of buy-to-let products have vanished from the market as lenders continue to keep their purse-strings drawn tight. Landlords with larger portfolios tend to have larger amounts of equity, and are finding mortgaging distinctly easier than small-scale investors - but lending criteria remains too tight generally. Thousands of would-be investors are being deterred from entering the market, although established large scale investors are better placed to grow their portfolios in the current market.”
Even if buying new properties can be challenging, current investors remain firmly committed to the buy-to-let sector. Just 13 per cent of all landlords expect to reduce their portfolios in the coming 12 months – a figure that includes investors who are leaving the market through retirement or lifestyle reasons.
Landlords who saw the current market as attractive for investment cited attractive house prices a driving factor, with 46 per cent mentioning improved demand from tenants and 41 per cent drawn by the returns against other investments. With interest rates low, the majority of landlords are comfortable with their current level of indebtedness, although just over a third are keen to reduce mortgage debt so that they can let out properties without paying interest. Just three per cent indicated they need to reduce borrowings because they are in negative equity.
David Brown concluded: “Confidence is stronger than it has been for some time, and those investors who can keep adding to their portfolios in the knowledge that tenant demand will continue to grow. Even with the additional help given to first-time buyers by the doubling of the stamp duty exemption, in the future a substantial percentage of the population will need to rely on rented accommodation until they are in their thirties or even forties, and investors are looking to meet that demand.”
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