Landlords are cautious, but have reasons for optimising their portfolios as tenant demand booms, according to the 2019 Q3 report on the private rented sector (PRS) from Paragon.
The average portfolio, held by a specially-chosen group of experienced landlords, had grown to 13.2 properties, while portfolio values among the average landlord in this group totalled £1.82 million, which Paragon reported as being a second successive all-time high.
As well as rising portfolio values, landlords were facing booming demand for properties from tenants, with demand at its highest since 2018 Q4. However, Paragon did note that optimism from landlords was tempered by limited scope to expand.
Only 8 per cent of landlords planned to make purchases in the next three-month period, while 22 per cent intended to sell during the same period, indicating a lack of willingness to commit to further market activity just yet.
Landlord optimism muted
Landlord optimism remained muted, at just 11 per cent, according to Paragon. This was substantially lower than the levels of optimism they recorded in 2014 Q1, when they estimated that optimism among landlords was at 41 per cent.
This level of pessimism among landlords suggested a continuation of a downward trend in landlord sentiment that had been becoming increasingly apparent, following moves by politicians to raise taxes and hike Stamp Duty on second homes, as well as the aftermath of the EU referendum in June 2016.
Paragon expected large-scale landlords to remain more active in the near term, with 10 per cent expecting to buy new properties, compared to just 1 per cent of small-scale landlords. They claimed this gap reflected a perceived polarisation between the two types of investors, as large-scale landlords could afford to make targeted investments. In contrast, small-scale ones simply chose to maintain existing portfolios or divest.
John Heron, managing director of mortgages at Paragon, commented on the downtrend in sentiment: “As a result, and with more unpredictability ahead, average gearing of investment portfolios increased on the previous quarter but stays historically low at 33 per cent loan-to-value (LTV), as do average mortgage payments as a proportion of rent, unchanged at 25 per cent.”
He concluded: “This is the result of landlords seeking to strengthen their financial position amid ongoing turbulence in the PRS.”
HMO interest wanes
Interest in homes of multiple occupancy (HMOs) moderated in the last quarter, having recorded a significant rise in demand in the previous quarterly report, for 2019 Q2. Interest in HMOs had previously risen from 5 per cent to 20 per cent, but fell to 12 per cent by 2019 Q3.
Landlords have shown increasing expectations of seeking to buy flats and maisonettes in the last quarter, with interest almost doubling from 27 per cent to 52 per cent. Detached properties had little to no interest in the previous report, but 6 per cent of landlords expressed some interest in buying them in the next year or so.
Semi-detached homes also saw a substantial increase in demand, with interest in them rising from 24 per cent in Q2 to 42 per cent in Q3.