"Improving landlord confidence is a 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"
- Bethan Cooke - Pegasus Insight
Landlord research carried out by mortgage market specialist Pegasus Insight reveals gently increasing optimism among landlords, despite the introduction of higher Capital Gains Tax in the October Budget and the potential impact of the Renters’ Rights Bill which the government has committed to introducing.
The latest Landlord Trends report for Q4 2024 shows that landlord confidence about the future of their own lettings business has increased year-on-year, with 37% saying they feel ‘good’ or ‘very good’ about their prospects in Q4 2024 compared to 33% in Q4 2023.
Since mid-2023, there has been a general upward trend in the proportion of landlords feeling optimistic about the prospects for their overall lettings business. Unsurprisingly, landlords who report making a ‘large profit’ are most likely to feel upbeat (71%), with this falling to 33% for those making a ‘small’ profit, and 8% for landlords who are either breaking even or loss-making.
On a quarterly basis, three measures showed a small uptick, with optimism about business prospects up from 32% in Q3 2024 to 37%, positivity about CGT up from 14% to 17% and optimism about rental yields nudging up slightly from 36% to 38%.
This gradual improvement in sentiment comes despite growing concerns over the potential impact of the Renters’ Rights Bill.
Around three-quarters of landlords think the Bill will be negative for their own lettings business, 43% significantly so. This rises to 65% who believe the Bill will have a significant negative impact on the Private Rented Sector more broadly.
Meanwhile, despite 73% of landlords saying they increased rents in 2024, more than 80% claim they are currently renting out at least one property at below-market rates, and 62% of landlords say they plan to increase rents further this year. Landlords letting at below market rates believe they are subsidising an average of 4.7 properties, typically by £144 each per month (equating to a total of £677).
The larger landlords are more likely to report letting at least some of their portfolios at below market rates, with a belief they are subsiding 12.8 properties each by an average of £120 per month (a total monthly loss of £1,536).
Even with these subsidies, the average achieved rental yield remains close to the Q3 2024 10-year high, at 6.4% in Q4.
“Improving landlord confidence is a 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," according to Bethan Cooke, director at Pegasus Insight, “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.
“What’s more, as the legislative threat builds, so does the pressure for landlords to pre-emptively increase rents to future-proof their businesses," she adds.
“Those landlords charging below-market rates may currently be compromising on revenue in order to retain good tenants, but may not feel they have the option of continuing to do so in a more restrictive environment.
Bethan concludes, “The long-term profitability trend for the buy-to-let market is stable, and prospects for the sector remain very good. So, while the Renter’s Rights Bill may make life more difficult for landlords, the unintended consequences are likely to be much harder on tenants themselves.”
