Buy-to-let landlords' confidence knocked

The number of landlords who think it is a good time to invest in property has fallen to 42 per cent, down from 48 per cent during the first quarter of the year, according to lettings agent network LSL Property Services.

One in five landlords is also planning to leave the sector completely, 6 per cent more than during the first three months of the year.

The group blamed the fall in confidence on a combination of house price falls and increases in capital gains tax, both of which reduce the profits landlords can make on property.

It said the average landlord owned three properties and had made

capital gains of 152,219 since they first bought them.

If they sold their properties today they would face a capital gains tax bill of 39,793 if they were liable for the new 28 per cent higher rate, compared with one of 25,581 under the old flat rate of 18 per cent.

Even landlords who own only one property have made average gains of 75,111, leaving them liable for a tax bill of 18,203 if they sold up, compared with one of 11,702 before the Budget.

But despite these issues, the group said confidence among landlords still remained relatively high with 32 per cent planning to expand their portfolios during the coming year.

David Newnes, estate agency managing director of LSL, said: "Rising rents and house prices offered landlords bumper annual returns at the start of the year, and this was reflected in the surge in confidence.

"This has fallen slightly following the slowdown in house prices and the capital gains tax hike.

"But the vast majority of landlords remain committed to buy-to-let. Attractive rents – just 12 per month shy of their peak – and increasing yields underpin their confidence in property investment."

More than a third of landlords said they had seen an increase in tenant demand, with one in 10 reporting substantial growth.

Nearly two thirds of investors expect demand to continue rising during the coming two years, compared with just 5 per cent who think it will fall away.

But landlords are continuing to struggle to get mortgages for their properties, with only 21 per cent saying the availability of cheap finance was currently a positive factor in the market.

Mr Newnes said: "Despite a slight easing in lending in the last quarter, mortgage finance constraints are hitting landlords. Funding conditions remain tight for lenders, and lending to landlords won't loosen significantly in the next two years."