Portfolio landlord confidence crashes whilst twice as many small landlords plan to purchase

21/02/2018 By Mark Long

The last year and a half has proved a rollercoaster for professional portfolio landlords and smaller landlords alike – albeit for very different reasons.

BVA BDRC’s two sister studies of the private rented sector have recorded significant differences between the attitudes, behaviours and future intentions of professional portfolio landlords and those of smaller landlords. The studies consisted of the Landlords Panel (LLP), which surveys members of the National Landlords Association with average portfolio sizes of 8 properties, and the Small Landlords Panel (SLLP), which surveys landlords with an average portfolio size of less than 3 properties.

Since Q2 2016, these ‘smaller’ landlords have become significantly more confident, with 1 in 4 consequently planning to purchase property in the next year (compared to 1 in 10 this time a year ago). By contrast, the ‘larger’ portfolio landlords have reported the exact opposite; the last 18 months have seen an erosion of their business confidence, resulting in them being half as likely to plan to purchase property in 2018.

So, where does this difference come from?

Well, it could just be financials. The average gross rental income of smaller landlords has increased by £18k over the last 18 months, and whilst the number of larger landlords turning a profit has remained stable, they haven’t been able to achieve anywhere near the same consistent increase in rental income. In fact, record numbers actually planned to divest throughout 2017, hitting an all-time high of 1 in 5 in Q3. This trend shows no signs of stopping as we approach the first wave of 2018 research.

Another factor influencing the differing attitudes of landlords could be perceived demand from tenants. The number of smaller landlords reporting a significant increase in tenant demand has almost quadrupled over the last 18 months, whilst we’ve seen the opposite trend amongst larger landlords; perceived demand has consistently weakened, leading to a five-year low at the end of 2017.

Of course, we can’t forget regulatory change. We’ve seen first-hand the impact that regulation changes have on confidence and purchase intention. Confidence amongst larger landlords nosedived after George Osborne announced changes to mortgage interest tax relief and wear and tear allowance back in 2015 – they had more of an impact on optimism than the last financial crisis! On the 30th September last year, new PRA regulations came into effect, impacting lending criteria and the application process for portfolio landlords (with four or more mortgaged properties). As a result, two thirds of larger landlords believe it will now be more difficult to obtain Buy-To-Let finance, and almost half think it will reduce the range of mortgage products available to them.

Will the smaller landlords’ optimistic confidence hold out? Will the downbeat attitudes of larger landlords and intentions to divest actually manifest in property sales? If you’d like to be the first to know, drop us a line.