Gearing amongst landlords remained low in the first quarter of the year, according to Paragon Mortgages, with the average loan-to-value (LTV) ratio decreasing by 2% to 35%.

Some 68% of over 200 landlords surveyed said they now have borrowings of less than half the value of their investment property portfolios and, since Q2 2012, average gearing has reduced significantly, from 42%, indicating the PRS is de-leveraging and has been for some time.

On average, landlords spend 30% of their rental income on mortgage payments, with almost half 43% in Q1 2017 saying they spend less than a quarter.

Although buying intentions remain subdued, there has been no large-scale sell off by landlords of buy-to-let properties. The size of the average portfolio is 13 properties, unchanged from Q4 2016 and the forecast is stable, as landlords indicate they do not expect their property portfolios to change in size over the next 12 months.

The average value of investment property portfolios is unchanged at £1.7 million following a sharp increase in Q4 2016 and is now reaching its highest ever levels. A quarter of landlord respondents expect value to increase in the next 12 months, whilst just 8% think it will decrease.

According to Paragon’s panel, demand for private rental properties has eased in the previous three months, with 38% of landlords saying tenant demand is ‘growing’ or ‘booming’. 

However, sentiment remains historically high and almost half (46%) of landlords believe tenant demand will increase over the next 12 months.

“Average gearing is low and getting lower, and this long-term de-leveraging demonstrates just how financially conservative buy-to-let landlords are,” comments John Heron, managing director of Paragon Mortgages. 

“Looking ahead, it’s realistic to expect this downward drift in gearing to continue as the PRA’s new buy-to-let underwriting standards take effect.”

He says that as mortgage interest tax relief changes are phased in over the next four years, landlord confidence may be ‘eroded’ which could lead to a reduction in property supply and subsequently higher average rents.