Taylor Scott International News
Private sector residential landlords in the UK are strengthening their credit profiles as they shift investment away from new acquisitions and towards the upgrading of existing portfolios, a new report suggests. Following announcements from the government last year that tax relief on rental income would be reduced, and stamp duty increased on buy to let purchases there has been a fall in buying intentions in the first quarter of 2016. The latest Private Rented Sector Trends report from Paragon Mortgages shows that just 9% of respondents intend to purchase a property over the next three months, down from 14% in the previous quarter. The report explains that this reduction coincides with rising levels of awareness about the implications of the tax relief changes. More than three quarters, 76%, of respondents said they now understand what the changes to tax relief will mean for them, up from 62% in the fourth quarter of 2015. Alongside scaling back on short term investment plans, landlords are also improving their credit profiles. Average levels of gearing, the value of an investment portfolio less existing outstanding mortgages, are down from 38% in the fourth quarter of 2015 to 36% in the first quarter of 2016. The research report also show that some 67% of landlords surveyed have borrowings of less than half the value of their investment property portfolios. Affordability levels are also improving with landlords spending, on average, 28% of their rental income on mortgage repayments, while 51% spend less than a quarter of their rental income on mortgage repayments. Returns are also very stable with the average net rental yield remaining at 4.7% for the third consecutive quarter. The latest data also indicates that landlords are considering upgrading existing portfolios. Asked whether, as a consequence of reduced tax relief on rental income, landlords would reduce maintenance of their properties, just 12% said they would, down from 25% in the fourth quarter of 2015. On the question of whether landlords would make fewer improvements to their properties, just 14% said they would make fewer improvements, a figure more than halved since the previous quarter when it stood at 31%. ‘The PRS is facing the prospect of a great deal of change as a result of the significant shift we have seen in fiscal and regulatory policy,’ said John Heron, director of mortgages at Paragon. ‘Some landlords are responding to this uncertainty by planning fewer new purchases and investing in their existing portfolios. At the same time credit profiles are very robust and improving, a picture that is somewhat at odds with the picture being painted in some quarters,’ he explained. ‘If landlords materially reduce investment, those that have to rely on the PRS for a home could be hit quite hard. It may well become even more difficult and expensive to rent a home with no obvious commensurate benefit to home owners,’ he added. Taylor Scott International
Taylor Scott International, Taylor Scott
