At face value, latest numbers on the buy-to-let market from Paragon Banking Group would suggest that the market is in a very rude state of health.
In its PRS Trends report for the third quarter, the bank advised that the average value of landlords’ investment property in the UK has hit a record high of £1.7m.
It said that although portfolio values began to topple in the wake of the financial crisis a decade ago — with average values dropping from £1.6m in the third quarter of 2008 to £1.35m just six months later — the majority of landlords kept their nerve and braced themselves for the heavy weather.
Paragon’s numbers certainly underline the wisdom of sitting tight and not panicking when market conditions become turbulent. However, landlords have been getting a little more panicky of late, and the FTSE 250 bank noted that “while it would be understandable to expect record portfolio values to have fed through to a feel-good factor among landlords, what we’re seeing is closer to the opposite.”
The tide is turning
Citing the reasons behind this decline, Paragon noted that “unprecedented tax and regulatory changes have clearly taken their toll. Not only are landlords braced for the initial impact of the phased removal of mortgage interest tax relief in their next tax bill, they also remain on guard for any further, unwelcome changes as we head into Budget season.”
Moreover, it said that “the prospect of post-Brexit economic uncertainty is also starting to weigh as negotiations move centre stage ahead of the UK’s March 2019 withdrawal deadline.”
And the data is there to back up the bank’s assertions. Just 11% of those surveyed by Paragon said that they are optimistic about the prospects for their property portfolios, the bank commenting that proprietors “are less optimistic about the future than at any time since 2010.”
It added that even if landlords maintain their portfolios at their current sizes, “more expect to see a drop in value over the next 12 months than those who anticipate an increase.” And as a consequence, some 21% of respondents said that they are considering selling some of their buy-to-let properties versus just 9% who are planning to buy.
Don’t get caught out!
There’s certainly no suggestion that things are getting any easier for the buy-to-let sector either. Indeed, in a bid to court favour with Britain’s legion of renters, the government is considering imposing minimum three-year tenancies on landlords, a situation which, incidentally, would deter 32% of those landlords interviewed by Paragon from buying any more rental properties.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.