January 29, 2025 4:01 pm

Insert Lead Generation
Nikka Sulton

Mortgage firm Pegasus Insight claims there is a “gently increasing optimism” among landlords, marking a shift in the mood within the sector.

According to the latest Landlord Trends report for Q4 2024, landlord confidence regarding the future of their lettings businesses has grown when compared to the previous year. Specifically, 37% of landlords in Q4 2024 reported feeling “good” or “very good” about their prospects, a slight increase from 33% in Q4 2023.

This upward trend in confidence has been apparent since mid-2023, with a noticeable rise in the proportion of landlords who are optimistic about their future within the lettings business. This marks a steady improvement in sentiment, despite challenges and uncertainties in the broader economic environment.

Landlords appear to be more assured in their ability to navigate the market, with growing positive outlooks on rental demand, property values, and business profitability. The report suggests that many landlords are adapting to changing circumstances and market conditions, which is contributing to their improving sense of optimism for the future.

Unsurprisingly, landlords who report making a ‘large profit’ are the most likely to feel upbeat about the future of their business. An impressive 71% of these landlords express confidence in their business prospects, demonstrating the positive impact that strong profits can have on optimism.

In contrast, for landlords making a ‘small’ profit, the level of optimism drops considerably. Only 33% of these landlords feel positive about their outlook, highlighting the challenges faced by those with lower margins in the industry.

For those landlords who are either breaking even or operating at a loss, the sentiment is even more subdued. Just 8% of these landlords report feeling optimistic, illustrating the financial strain that can dampen confidence and affect long-term planning for their business.

On a quarterly basis, there has been a small but noticeable improvement in sentiment among landlords. Optimism about business prospects increased from 32% in Q3 2024 to 37% in Q4 2024, signalling a steady, though cautious, rise in landlord confidence overall.

Additionally, there was a rise in positivity regarding other key factors. The percentage of landlords who feel confident about Capital Gains Tax (CGT) climbed from 14% in Q3 to 17% in Q4. While the rise is modest, it suggests that landlords may be seeing more favourable conditions or potential for future gains.

Similarly, optimism about rental yields saw a slight increase, moving up from 36% in Q3 to 38% in Q4. This uptick reflects a small but significant shift in landlords’ outlook towards the profitability of their rental properties, which is encouraging in the current market.

However, despite these small improvements in sentiment, landlords’ concerns about the Renters’ Rights Bill continue to loom large. The potential impact of the Bill has raised alarm bells among many landlords, with around three-quarters of them expecting the legislation to negatively affect their lettings business.

Of those landlords who anticipate a negative impact, 43% believe that the effect will be “significant.” This highlights the widespread concern that the Bill could disrupt the business models of landlords, potentially leading to higher operational costs or changes to how they can manage their properties.

Furthermore, the impact of the Renters’ Rights Bill is not just a concern for individual landlords. A staggering 65% of landlords believe that the Bill will have a significantly negative effect on the broader Private Rented Sector (PRS), raising fears about the future viability of the sector as a whole. This suggests that the proposed legislation could have far-reaching consequences, reshaping the landscape of the UK rental market.

Despite these concerns, the increasing optimism among landlords, especially those making a larger profit, indicates that there is still hope for the future of the lettings business. However, the uncertainty surrounding the Renters’ Rights Bill means that landlords will need to carefully monitor the situation and adapt their strategies to ensure their business remains viable.

Ultimately, while there are challenges ahead, the slight improvements in confidence and business outlook offer a sense of cautious optimism. Landlords will need to stay agile and informed to navigate the changing landscape of the rental market and respond effectively to both opportunities and challenges.

Meanwhile, despite 73% of landlords reporting that they increased rents in 2024, more than 80% claim they are currently renting out at least one property below market rates. Additionally, 62% of landlords have stated that they plan to raise rents further this year.

Landlords who are letting at below market rates estimate they are subsidising an average of 4.7 properties, typically by £144 each per month, which adds up to a total of £677 per month. Larger landlords are more likely to report letting at least some of their portfolio at below market rates. These landlords believe they are subsidising an average of 12.8 properties each, by £120 per month, resulting in a total monthly loss of £1,536.

Even with these subsidies, the average achieved rental yield remains close to the 10-year high of 6.4% recorded in Q3 2024, with only a slight dip in Q4.

Bethan Cooke, director at Pegasus Insight, explains: “Improving landlord confidence is testament to the resilience of the buy-to-let sector and the strength of the fundamental economics underpinning this market, fundamentals which the Renters’ Rights Bill will only serve to reinforce.”

She adds, “If this new Bill forces more landlords to exit the market, it will further deepen the supply/demand imbalance, which pushed average rents to unprecedented levels last year.”

Cooke also highlights that as the legislative threat grows, so does the pressure on landlords to increase rents pre-emptively in order to future-proof their businesses. “Those landlords charging below-market rates may currently be compromising on revenue to retain good tenants. However, they may not feel they have the option to continue doing so in a more restrictive environment,” she comments.

Looking at the long-term trend, Cooke remains optimistic, stating, “The long-term profitability trend for the buy-to-let market is stable, and prospects for the sector remain very good. So, while the Renters’ Rights Bill may make life more difficult for landlords, the unintended consequences are likely to be much harder on tenants themselves.”

This mixed perspective reflects the broader concerns within the industry about the impact of the Renters’ Rights Bill, while also acknowledging the ongoing resilience of the buy-to-let market. The balancing act between profitability and maintaining good tenant relationships will remain a challenge for landlords in the face of changing legislation.

 

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