Landlords face crisis of confidence despite resilient profitability

Landlords are experiencing a crisis of confidence despite resilient financial performance, research suggests.

Analysis by Pegasus Insight reveals a striking contrast between profitability and sentiment in the past 15 years.

The research company found that just 23% of landlords are confident about the prospects for their own letting business, compared with 63% in 2011.

Yet 85% report making a profit, up from 82%, while the proportion experiencing rental arrears has fallen from 50% to 28%. Average rental yields have remained relatively steady at 6.4%, compared with 6.7% in 2011.

The gap between performance and confidence becomes more understandable when you consider the cumulative effect of government policy.”

The findings also reveal a changing landlord demographic, with implications for lenders’ product design and risk appetite.

The average landlord is 63 years old, compared with 56 in 2011, while average portfolio size has fallen from 11.8 properties to eight.

The average number of buy-to-let mortgages has declined from 8.8 to 5.9, while the proportion of landlords owning their entire portfolios outright has risen from 25% to 43%.

Alongside these changes, landlords’ relationship with the sector has deteriorated markedly. Only 25% feel positive about being a landlord, down from 77% in 2011, while only 2% believe landlords are respected, compared with 7% previously.

Almost nine in ten – at 89% – say being a landlord has become harder in recent years, up from 66% in 2011.

Meanwhile, the proportion saying it allows them to earn a living has fallen from 62% to 48%, highlighting the distinction between reporting a profit and feeling that letting property provides a worthwhile livelihood.

Limited company ownership has also become more widespread. Almost a quarter of landlords, at 24%, hold at least one property in a limited company, up from 17% in the third quarter of 2020. Among landlords with incorporated properties, the average number held in a company has risen from 7.6 to 12.7, representing 75% of their portfolios compared with 57% six years ago.

Confidence gap

Bethan Cooke (pictured), Director of Pegasus Insight, says: “The gap between performance and confidence becomes more understandable when you consider the cumulative effect of government policy. Successive Conservative and Labour governments have left landlords feeling that their contribution is undervalued and wondering where the next additional cost or obligation will come from.

“George Osborne’s announcement in 2015 restricting mortgage interest tax relief marked a turning point. Since then, repeated changes to taxation and regulation have reinforced the feeling that the pressure only moves in one direction, with last week’s Budget adding to those concerns.

“A landlord can run a profitable business and still decide that further investment is no longer worth the uncertainty or effort. That is the risk these findings expose. With housing already in short supply, we need an environment in which responsible landlords feel confident about continuing to provide homes.”

Landlord resilience

Mark Long, Managing Director of Pegasus Insight, adds: “Landlords have demonstrated considerable resilience, adapting their businesses through years of change. Their fears about the future can obscure the commercial reasons for remaining in the market, particularly the continuing demand for the homes they provide.

“The changing landlord demographic raises important questions for lenders. They need to understand landlords’ longer-term plans, whether they are borrowing to invest, refinancing an established portfolio or preparing to reduce their involvement in the sector. Those different needs have implications for mortgage terms, age criteria and product flexibility.

“Alongside this, we expect professionalisation to continue, with experienced portfolio landlords playing an increasingly important role. Lenders will need to consider how their product design, underwriting and risk appetite accommodate both an ageing landlord population and the more complex requirements of professional businesses.

“Brokers can help landlords put their concerns into perspective, assess their options against their own circumstances and find suitable solutions. Understanding who is borrowing, why they need finance and what they intend to do next will be essential.

“Tracking these shifts over time helps lenders look beyond the prevailing mood and make decisions based on how landlords are actually behaving. Confidence is fragile, but there is a resilient business sector beneath it.”