The number of landlords considering expanding their buy-to-let portfolio has fallen to a record low, according to the latest figures from the buy-to-let arm of Lloyds Banking Group, BM Solutions. Only 13% of landlords have plans to expand their portfolio. This is the smallest percentage since the survey started 11 years ago.

Tax changes are being cited as the main reasons why they are reluctant to invest further, but also tenant demand has fallen, particularly in London. Most landlords are not feeling optimistic about the future either. Altogether, 47% of landlords in the South East are optimistic about the prospects of their letting business, compared to just 26% in Scotland and Wales. This is also likely to be a reason why fewer are looking to invest further in the business.

More landlords are also leaving the sector because of higher stamp duty costs and mortgage tax relief being phased out, according to a study by the Association of Residential Letting Agents. They found that estate agents are reporting an average of four landlords selling properties in each branch in March, which is up from an average of three in February. Two-thirds of the people surveyed also feared more landlord taxes will be brought in this year. ARLA Propertymark chief executive, David Cox, said the market is becoming less attractive to investors. He added that some landlords seemed to be leaving the market, rather than pay higher taxes.

However, many feel it is still a good business to get into because the UK population continues to grow. This, coupled with the fact that people are living longer, means there are fewer properties on the market to buy. Prices are also way out of reach of many people. Getting the balance right between yield and capital growth is the key to property investment. For instance, yields in London are poor, but capital growth is healthy. Rental yields in the North East can be as much as 15%, but the capital growth is not so good. As is so often said in the world of property, location is the key to success here.

A shrewd investor will research an area, look at the average rents compared to property prices and then decide whether it is a sound investment or not. Whilst London has the highest demand and rental prices, investing in a rental property is very expensive. It may be prudent to look further afield for a better return on investment.

 

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